Contagious bank failures in a free banking system

Philippe Aghion, Patrick Bolton and Mathias Dewatripont

Scholarly Articles from Harvard University Department of Economics

Abstract: This paper develops a model of an unregulated banking system based around a private clearing house arrangement. Whilst such a system may dominate one with a public safety net in reducing moral hazard in lending and therefore the scope for individual bank insolvency, it also increases the likelihood of contagious bank failures following a systemic shock or an aggregate liquidity shortage.

Date: 2000
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Citations: View citations in EconPapers (66)

Published in European Economic Review

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Journal Article: Contagious bank failures in a free banking system (2000)
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Persistent link: https://EconPapers.repec.org/RePEc:hrv:faseco:12490629

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