The Welfare Costs of Self-Fulfilling Bank Runs

Elena Mattana and Ettore Panetti

No 2017/17, Working Papers REM from ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa

Abstract: We study the welfare implications of self-fulfilling bank runs and liquidity require-ments, in a neoclassical growth model where banks, facing long-lasting possible runs, can choose in any period a run-proof asset portfolio. In this framework, runs distort banks’insurance provision against idiosyncratic liquidity shocks, and liquidity requirements re-solve this distortion by forcing a credit tightening. Quantitatively, the welfare costs of self-fulfilling bank runs are equivalent to a constant consumption loss of up to 2.5 percent of U.S. GDP. Depending on fundamentals, liquidity requirements might generate small welfare gains, but also increase the welfare costs by up to 1.8 percent.

Keywords: financial intermediation; bank runs; regulation; welfare (search for similar items in EconPapers)
JEL-codes: E21 E44 G01 G20 (search for similar items in EconPapers)
Date: 2017-11
New Economics Papers: this item is included in nep-ban, nep-dge, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://rem.rc.iseg.ulisboa.pt/wps/pdf/REM_WP_017_2017.pdf (application/pdf)

Related works:
Journal Article: The Welfare Costs of Self‐Fulfilling Bank Runs (2021)
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:ise:remwps:wp0172017

Access Statistics for this paper

More papers in Working Papers REM from ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa ISEG - Lisbon School of Economics and Management, REM, R. Miguel Lupi, 20, LISBON, PORTUGAL.
Bibliographic data for series maintained by Sandra Araújo ().