Bank runs, welfare and policy implications |
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Authors: | Haibin Zhu |
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Institution: | Bank for International Settlements, Basel-4002, Switzerland |
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Abstract: | This paper studies the welfare implications of various government policies that have been used to prevent bank runs. The benchmark model suggests that a bank run is a business-cycle-state-related phenomenon and it leads to the failure of the risk-sharing mechanism provided by the banking sector. Extensions of the model show that a number of policy instruments, including the suspension of convertibility of deposits, the taxation on short-term deposits, reserve requirement and blanket guarantee, turn out to be inefficient. Instead, I propose that a limited-coverage deposit insurance scheme or capital requirements can be welfare-improving. |
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Keywords: | Bank runs Bank regulation Suspension of convertibility Deposit insurance Capital requirement |
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