This paper explores the effects of relationship lending on bank stability under perfect bank competition. Relationship banking generates profitable old lending relationships, which ease the stress to search and monitor new borrowers, and create great charter values for banks even under bank...

This paper develops a panic-free bank system in an OLG model. A bank issues both demand deposits and time deposits (or bank stocks) so that the maturity-matching constraint is satisfied. The agents who cannot participate in capital markets put their savings in demand deposits; others favour...

We demonstrate that a bank can offer demand deposits and yet avoid bank runs without deposit insurance if it also offers time deposits that have a low liquidation value. Self-fulfilling runs do not occur, as maturity mismatch is eliminated. To do this, we modify Diamond and Dybvig"s [1983] model...

Fair pricing of deposit insurance represents one of the most difficult problems of bank regulation. This paper introduces an incentive compatible mechanism such that fair (risk-based) deposit insurance premiums can be achieved under adverse selection. The deposit insurer screens banks by...