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Interbank contagion at work: evidence from a natural experiment

Iyer, Rajkamal; Peydró, José-Luis - 2010

This paper tests financial contagion due to interbank linkages. For identification we exploit an idiosyncratic, sudden shock caused by a large-bank failure in conjunction with detailed data on interbank exposures. First, we find robust evidence that higher interbank exposure to the failed bank...

Persistent link: https://www.econbiz.de/10011605193

Preventing bank runs

Andolfatto, David; Nosal, Ed; Sultanum, Bruno - 2014

Diamond and Dybvig (1983) is commonly understood as providing a formal rationale for the existence of bank-run equilibria. It has never been clear, however, whether bank-run equilibria in this framework are a natural byproduct of the economic environment or an artifact of suboptimal contractual...

Persistent link: https://www.econbiz.de/10011460665

Preventing bank runs

Andolfatto, David; Nosal, Ed; Sultanum, Bruno - In: Theoretical Economics 12 (2017) 3, pp. 1003-1028

The work of Diamond and Dybvig, 1983 is commonly understood as a theory of bank runs driven by self …-fulfilling prophecies. Their contribution may alternatively be interpreted as a theory for preventing these bank runs. Absent aggregate risk …-run equilibrium, which suggests that Diamond and Dybvig, 1983 can be understood as a theory of bank runs. The use of direct mechanisms …

Persistent link: https://www.econbiz.de/10012010005

Bank liquidity, interbank markets, and monetary policy

Freixas, Xavier; Martin, Antoine; Skeie, David - 2009

A major lesson of the recent financial crisis is that the interbank lending market is crucial for banks that face uncertainty regarding their liquidity needs. This paper examines the efficiency of the interbank lending market in allocating funds and the optimal policy of a central bank in...

Persistent link: https://www.econbiz.de/10010287158

Will an optimal deposit insurance always increase financial stability?

Drehmann, Mathias - 2002

In this paper we show that deposit insurance can increase the probability of systemic banking crisis, even though it is optimally designed and its premium is risk related. This is driven by the possibility of contagious bank runs. We prove that contagion only occurs if the correlation between...

Persistent link: https://www.econbiz.de/10010263073

The Failure of Northern Rock: A multi-dimensional Case Study

Congdon, Tim; Goodhart, Charles A.E.; Eisenbeis, Robert A. - 2009

In August 2007 the United Kingdom experienced its first bank run in over 140 years. Although Northern Rock was not a particularly large bank (it was at the time ranked 7th in terms of assets) it was nevertheless a significant retail bank and a substantial mortgage lender. In fact, ten years...

Persistent link: https://www.econbiz.de/10011689937

Contagion effects of the Silicon Valley Bank run

Choi, Dong Beom; Goldsmith-Pinkham, Paul; Yorulmazer, Tanju - 2023

This paper analyzes the contagion effects associated with the failure of Silicon Valley Bank (SVB) and identifies bank-specific vulnerabilities contributing to the subsequent declines in banks' stock returns. We find that uninsured deposits, unrealized losses in held-to-maturity securities, bank...

Persistent link: https://www.econbiz.de/10014540982

The optimal level of deposit insurance coverage

Manz, Michael - 2009

This paper develops a global game model that allows for a rigorous analysis of partial deposit insurance and provides the first comparative statics of the optimal level of deposit coverage. The optimal amount of coverage increases with lower bank liquidity requirements, with a higher precision...

Persistent link: https://www.econbiz.de/10010280895

Extracting leading indicators of bank fragility from market prices : Estonia focus

Chen, Yu-Fu; Funke, Michael; Männasoo, Kadri - 2006

Banking reform has proved to be one of the most problematic elements of economic transition in central and Eastern Europe. Therefore the paper considers the development of the Estonian banking sector and derives individual banks´ fragility scores during transition. To this end we use...

Persistent link: https://www.econbiz.de/10010271924

Asymmetric information and bank runs

Gu, Chao - 2007

It is known that sunspots can trigger panic-based bank runs and that the optimal banking contract can tolerate panic-based runs. The existing literature assumes that these sunspots are based on a publicly observed extrinsic randomizing device. In this paper, I extend the analysis of panic-based...

Persistent link: https://www.econbiz.de/10010292051