Efficient Financial Crises

Ariel Zetlin-Jones

No 2014-E19, GSIA Working Papers from Carnegie Mellon University, Tepper School of Business

Abstract: We develop a theory of systemic financial crises. We obtain conditions under which a single bank optimally chooses a fragile capital structure that is subject bank runs. When depositors are unable to commit to long-term lending arrangements, they optimally finance the bank using short-term debt. With multiple banks, lack of depositors’ commitment leads depositors to invest via short-term debt in a financial system in which all banks make loans with correlated, volatile returns. The optimal financial system features occasional, costly systemic crises in which all banks are subject to ex post inefficient liquidations. In this sense, financial crises are efficient.

New Economics Papers: this item is included in nep-cba and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.andrew.cmu.edu/user/azj/research/shortdebt_current.pdf
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.andrew.cmu.edu/user/azj/research/shortdebt_current.pdf [302 Moved Temporarily]--> https://www.andrew.cmu.edu/user/azj/research/shortdebt_current.pdf)

Related works:
Working Paper: Efficient Financial Crises (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cmu:gsiawp:-1756908850

Ordering information: This working paper can be ordered from
https://student-3k.t ... /gsiadoc/GSIA_WP.asp

Access Statistics for this paper

More papers in GSIA Working Papers from Carnegie Mellon University, Tepper School of Business Tepper School of Business, Carnegie Mellon University, 5000 Forbes Avenue, Pittsburgh, PA 15213-3890.
Bibliographic data for series maintained by Steve Spear ().