Bank runs, prudential tools and social welfare in a global game general equilibrium model

Daisuke Ikeda

No 732, Bank of England working papers from Bank of England

Abstract: I develop a general equilibrium model that features endogenous bank runs in a global game framework. A bank run probability — systemic risk — is increasing in bank leverage and decreasing in bank liquid asset holdings. Bank risk shifting and pecuniary externalities induce excessive leverage and insufficient liquidity, resulting in elevated systemic risk from a social welfare viewpoint. Addressing the inefficiencies requires prudential tools on both leverage and liquidity. Imposing one tool only causes risk migration: banks respond by taking more risk in another area. I extend the model and study risk migration in other fields including sectoral lending, concentration risk and shadow banking.

Keywords: Bank runs; global games; capital and liquidity requirements; risk migration (search for similar items in EconPapers)
JEL-codes: E44 G01 G21 G28 (search for similar items in EconPapers)
Pages: 57 pages
Date: 2018-06-08
New Economics Papers: this item is included in nep-ban, nep-dge, nep-knm and nep-mac
References: Add references at CitEc
Citations: View citations in EconPapers (8)

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Related works:
Journal Article: Bank runs, prudential tools and social welfare in a global game general equilibrium model (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0732

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