Money Runs

Jason R. Donaldson and Giorgia Piacentino

No 26298, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We develop a model in which, as in practice, bank debt is both a financial security used to raise funds and a kind of money used to facilitate trade. This dual role of bank debt provides a new rationale for why banks do what they do. In the model, banks endogenously perform the essential functions of real-world banks: they transform liquidity, transform maturity, pool assets, and have dispersed depositors. Moreover, they make their debt redeemable on demand. Thus, they are endogenously fragile. We show novel effects of narrow banking, suspension of convertibility, and some other policies.

JEL-codes: G01 G21 (search for similar items in EconPapers)
Date: 2019-09
New Economics Papers: this item is included in nep-ban, nep-cba and nep-mon
Note: CF ME
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Published as Jason Roderick Donaldson & Giorgia Piacentino, 2021. "MONEY RUNS," Journal of Monetary Economics, .

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