Bank runs, welfare and policy implications

Zhu Haibin

No 107, BIS Working Papers from Bank for International Settlements

Abstract: This paper proposes a model in which bank runs are closely related to the state of the business cycle. The benchmark model shows that, in a market economy, there are welfare losses due to the existence of bank runs. Extensions of the model explore the welfare effects of various government policies. The results suggest that an interest-cap deposit insurance scheme is an efficient policy to prevent bank runs, while other policies, including the suspension of convertibility, a penalty on short-term deposits and full-coverage deposit insurance schemes, will all have adverse side effects.

JEL-codes: E5 G21 G28 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2001-12
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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