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Rapid Bank Runs and Delayed Policy Responses

Ryuichiro Izumi and Yang Li (liyang@suss.edu.sg)
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Yang Li: Singapore University of Social Sciences

No 2024-006, Wesleyan Economics Working Papers from Wesleyan University, Department of Economics

Abstract: The banking turmoil of 2023 highlighted how technological advancements have significantly accelerated the speed of bank runs. This paper investigates the impact of these faster bank runs on the effectiveness of policy interventions by interpreting them as a constraint on the relative speed of policy responses. Using a model of bank runs and ex-post policy responses, we examine how delays caused by this constraint affect financial fragility and welfare. We find that while delays exacerbate welfare loss by distorting allocations, they may also decrease fragility by making banks more cautious. We explore the optimal level of structural delay, balancing the trade-off between distributional distortions and financial fragility.

Keywords: Bank runs; Delayed Intervention; Speed of Bank Runs (search for similar items in EconPapers)
JEL-codes: E58 G21 G28 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2024-06
New Economics Papers: this item is included in nep-ban, nep-cba, nep-fdg, nep-mon and nep-sea
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Persistent link: https://EconPapers.repec.org/RePEc:wes:weswpa:2024-006

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