Bank Runs and Asset Price Collapses
Hiroki Toyoda ()
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Hiroki Toyoda: Institute of Economic Research, Kyoto University
No 988, KIER Working Papers from Kyoto University, Institute of Economic Research
To study the relationship between bank runs and asset prices, we consider a banking model that incorporates a secondary market for long-term assets. Adverse selection arises in this market because banks are better informed about the quality of their assets than other market participants. The model generates multiple equilibria. In one equilibrium, bank runs cannot occur. In another equilibrium, asset prices can be low and bank runs can occur. This can be interpreted as a financial crisis. In this framework, a liquidity requirement for banks might cause bank runs.
Keywords: Bank runs; Asset market; Adverse selection (search for similar items in EconPapers)
JEL-codes: D82 G01 G21 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:kyo:wpaper:988
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