What configuration of asset returns will make the banking system most susceptible to a self-fulfilling run? I study this question in a version of the model of Diamond and Dybvig (1983) with limited commitment and a non-trivial portfolio choice. I show that the relationship between the returns on...

Anticipating a bailout in the event of a crisis distorts a bank's incentives in multiple dimensions. Bailout payments can, for example, lead banks to issue too much short-term debt while simultaneously underinvesting in liquid assets. To correct these distortions, policymakers may choose to...

How do the returns on banks' assets affect the susceptibility of the banking system to a self-fulfilling run by depositors? I study this question in a version of the model of Diamond and Dybvig (1983) with limited commitment and a non-trivial portfolio choice. I show that the relationship...