Bank Runs, Fragility, and Regulation

Manuel Amador and Javier Bianchi

No 32341, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We examine banking regulation in a macroeconomic model of bank runs. We construct a general equilibrium model where banks may default because of fundamental or self-fulfilling runs. With only fundamental defaults, we show that the competitive equilibrium is constrained efficient. However, when banks are vulnerable to runs, banks’ leverage decisions are not ex-ante optimal: individual banks do not internalize that higher leverage makes other banks more vulnerable. The theory calls for introducing minimum capital requirements, even in the absence of bailouts.

JEL-codes: E32 E44 E58 G01 G21 G33 (search for similar items in EconPapers)
Date: 2024-04
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge, nep-fdg, nep-mon, nep-reg and nep-rmg
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Working Paper: Bank Runs, Fragility, and Regulation (2024)
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