Could making banks hold only liquid assets induce bank runs?

James Peck and Karl Shell ()

Journal of Monetary Economics, 2010, vol. 57, issue 4, 420-427

Abstract: Restrictions placed on bank portfolios are analyzed in a banking model designed to capture the role of checking accounts in facilitating transactions. Forcing banks to hold only liquid assets creates the incentive for liquidity-based runs. Even when a run does not occur, welfare is reduced as a result of overinvestment in the liquid asset.

Keywords: Bank; runs; Bank; stability; Deposit; contracts; Glass-Steagall; banking; Mechanism; design; Portfolio; restrictions; Sunspot; equilibrium (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:57:y:2010:i:4:p:420-427

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