Bank runs, prudential tools and social welfare in a global game general equilibrium model

Daisuke Ikeda

Journal of Financial Stability, 2024, vol. 72, issue C

Abstract: Basel III features requirements on bank capital and liquidity along with disclosure requirements. I study these prudential tools by developing a general equilibrium model with bank runs in a global game framework, where leverage, liquidity, interest rates, and the probability of a banking crisis are all determined endogenously. With timely disclosure about bank assets, the unregulated economy has efficient liquidity but excessive leverage due to a pecuniary externality, warranting a leverage restriction. Delayed disclosure gives rise to bank risk shifting, making leverage even more excessive and liquidity insufficient, which warrants joint requirements on leverage and liquidity. Empirical predictions and policy implications are derived and discussed.

Keywords: Bank runs; Global games; Capital and liquidity requirements; Disclosure requirements; Risk shifting; Pecuniary externality; Risk migration (search for similar items in EconPapers)
JEL-codes: E44 G01 G21 G28 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (1)

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Working Paper: Bank runs, prudential tools and social welfare in a global game general equilibrium model (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:72:y:2024:i:c:s1572308924000214

DOI: 10.1016/j.jfs.2024.101236

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