The Deposit Base - Multibanking and Bank Stability

Hendrik Hakenes () and Eva Schliephake ()

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: To provide maturity transformation, banks need a deposit base – deposits that could be, but are not, withdrawn most of the time and are, thus, used for long-term lending. In a global-games environment, we show that a higher deposit base protects banks against panic runs. As depositors become more flexible in their bank relations, keeping multiple accounts at different institutions, the deposit base of banks changes. We analyze the impact of multi-banking on bank stability and show that in an economy with specialized institutions, households allocate too few funds to maturity-transforming institutions (banks). A policy-maker should support the banks, even though they are more fragile. If only some institutions are protected by deposit insurance, the deposit base moves away from the unprotected institutions, leaving them more prone to runs.

Keywords: Bank Runs; Deposit Base; Global Games; Financial Stability (search for similar items in EconPapers)
JEL-codes: G21 G28 H23 (search for similar items in EconPapers)
Pages: 36
Date: 2019-07
New Economics Papers: this item is included in nep-ias
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:bon:boncrc:crctr224_2019_108

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