A Model for Financial Intermediation and Public Intervention

Margarita Samartin
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Margarita Samartin: Center for Operations Research and Econometrics (CORE), Université catholique de Louvain (UCL), Louvain la Neuve, Belgium

No 1996043, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: Based on Chari and Jagannathan (1988), this paper models information-induced and “pure-panic" runs in an environment of risk-averse agents. In this framework, deposits are needed to provide insurance against investors' unexpected demand for liquidity and therefore, a role for a financial intermediary is justified. Conditions to assure bank-runs as an equilibrium phenomenon are derived and a welfare analysis of two devices that have traditionally been used by banks in order to prevent runs (namely, suspension of convertibility versus deposit insurance), is presented.

Date: 1996-09-01
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Persistent link: https://EconPapers.repec.org/RePEc:cor:louvco:1996043

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