Savings, efficiency and bank runs

Agnese Leonello, Caterina Mendicino, Ettore Panetti and Davide Porcellacchia

No 2636, Working Paper Series from European Central Bank

Abstract: Does the level of deposits matter for bank fragility and efficiency? By augmenting a standard model of endogenous bank runs with a consumption-saving decision, we obtain two novel results. First, depositors’ incentives to run are a function of the level of savings held as bank deposits. Second, a saving externality emerges in that individual depositors do not internalize the effect of their saving decisions on the bank-run probability. As a result, the economy features an inefficient level of savings and bank liquidity provision as well as excessive bank fragility. These results are robust to different sources of bank fragility, as they emerge both when runs are panic- and fundamental-driven. JEL Classification: G01, G21, G28

Keywords: endogenous bank runs; financial crises; liquidity provision; saving externality (search for similar items in EconPapers)
Date: 2022-01
New Economics Papers: this item is included in nep-ban, nep-cba, nep-cwa and nep-fdg
Note: 2292323
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Related works:
Working Paper: Savings, Efficiency and Bank Runs (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20222636

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