Smart Banks

Alkis Georgiadis-Harris (), Maxi Guennewig () and Yuliyan Mitkov ()

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: Since Diamond and Dybvig (1983), banks have been viewed as inherently fragile. We challenge this view in a general mechanism design framework, where we allow for ŕexibility in the design of banking mechanisms while maintaining limited commitment of the intermediary to future mechanisms. We őnd that the unique equilibrium outcome is efficient. Consequently, runs cannot occur in equilibrium. Our analysis points to the ultimate source of fragility: banks are fragile if they cannot collect and optimally respond to useful information during a run and not because they engage in maturity transformation. We link our banking mechanisms to recent technological advances surrounding ‘smart contracts,’ which enrich the practical possibilities for banking arrangements.

Keywords: Bank runs; őnancial fragility; mechanism design; limited commitment; smart contracts. (search for similar items in EconPapers)
JEL-codes: D82 G2 (search for similar items in EconPapers)
Pages: 42
Date: 2024-04
New Economics Papers: this item is included in nep-ban, nep-cta, nep-fdg and nep-mic
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