Asset Transfers and Self-Fulfilling Runs

Jonathan Payne and Joshua Weiss
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Jonathan Payne: Princeton University
Joshua Weiss: New York University

Working Papers from Princeton University. Economics Department.

Abstract: We introduce a new mechanism that eliminates self-fulfilling runs on a Diamond Dybvig intermediary. If a depositor wants to end their relationship with the intermediary early, they can withdraw goods or take ownership of unliquidated assets from the intermediary's balance sheet. We interpret this mechanism as a repo contract or a bankruptcy plan. What frictions prevent intermediaries from transferring assets to depositors? High transaction costs and within-intermediary idiosyncratic return risk. Our results are robust to the introduction of an asset market with adverse selection.

Keywords: self-fulfilling runs; asset transfer (search for similar items in EconPapers)
JEL-codes: G21 H12 (search for similar items in EconPapers)
Date: 2020-05
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:pri:econom:2020-42

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