Maturity Risks and Bank Runs

Jihene Arfaoui and Harald Uhlig ()

No 33955, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Inspired by the Silicon Valley Bank run and building on Diamond- Dybvig (1993), we develop a model in which asset price fluctuations can trigger bank runs. Liquidation amounts to selling assets at their market price. Depositors can buy and hold the assets after paying an idiosyncratic cost. We characterize the equilibria. We introduce a withdrawal pressure function to distinguish between fundamental runs, driven by market price declines, and self-enforcing runs triggered by depositor panic. Deposit insurance can prevent self-enforcing runs but incurs losses during fundamental runs. Regulatory measures ensuring price resilience reduce run risks, but at the expense of depositor welfare.

JEL-codes: E43 E44 G01 G21 G28 (search for similar items in EconPapers)
Date: 2025-06
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