Insufficient monitoring by depositors, and thus a lack of market discipline, are often seen as a typical feature of banks. We show that the opposite may be the case. Banks, defined as fims that borrow from a large number of partially uninformed investors, have a tendency to be excessively...

Over the past decade several countries, including the US, have introduced or redesigned legislation that confers priority in bankruptcy upon all or some bank deposits. We argue that in the presence of contracting costs such rules can increase efficiency. We first show in a private information...