Opacity of Banks and Runs with Solvency

Carmela D'Avino and Marcella Lucchetta ()

MPRA Paper from University Library of Munich, Germany

Abstract: In absence of bank risk-taking behavior, opacity is defined as the inability of depositors, speculators and central banker to disentangle default risk and asset's return from the asset's value. We show the conditions under which opacity leads to runs on a solvent bank in equilibrium and uncertainty on fundamental values of the asset. The main repercussion of the opacity is, however, on the central bank's policy response which is inefficient during a banking crisis.

Keywords: Opacity; Bank Runs; Central Bank Intervention; Cash-in-Market Pricing. (search for similar items in EconPapers)
JEL-codes: E5 E61 G01 G1 G21 (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-ban
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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https://mpra.ub.uni-muenchen.de/24207/1/MPRA_paper_24207.pdf revised version (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:24166

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