English, Article, Journal or magazine article edition: Bank Runs and Investment Decisions Revisited Todd Keister; Huberto M. Ennis

User activity

Share to:
 
Bookmark: http://trove.nla.gov.au/version/57407
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Bank Runs and Investment Decisions Revisited
Author
  • Todd Keister
  • Huberto M. Ennis
Physical Description
  • preprint
Notes
  • We examine how the possibility of a bank run affects the deposit contract offered and the investment decisions made by a competitive bank. Cooper and Ross (1998) have shown that when the probability of a run is small, the bank will offer a contract that admits a bank-run equilibrium. We show that, in this case, the bank will chose to hold an amount of liquid reserves exactly equal to what withdrawal demand will be if a run does not occur. In other words, precautionary or "excess" liquidity will not be held. This result allows us to determine how the possibility of a bank run affects the level of illiquid investment chosen by a bank. We show that when the cost of liquidating investment early is high, the level of investment is decreasing in the probability of a run. However, when liquidation costs are moderate, the level of investment is actually increasing in the probability of a run.
  • RePEc:fip:fedrwp:04-03
  • In this paper we extend the Cooper and Ross (1998) analysis of the optimal response of a competitive bank to the possibility of a bank run. If the probability of a run is small, the bank will offer a contract that admits a bank-run equilibrium. We show that, in this case, the bank will hold a quantity of liquid assets large enough to exactly meet withdrawal demand if a run does not occur; "excess" liquidity will not be held. This result allows us to determine how the possibility of a bank run affects the level of long-term investment chosen by a bank. We show that when the cost of liquidating investment early is high, the level of investment is decreasing in the probability of a run. However, when liquidation costs are smaller, the level of investment is actually increasing in the probability of a run.
  • Bank runs
  • RePEc:red:sed004:180
Language
  • English
Contributed by
OAIster

Get this edition

  • Set up My libraries

    How do I set up "My libraries"?

    In order to set up a list of libraries that you have access to, you must first login or sign up. Then set up a personal list of libraries from your profile page by clicking on your user name at the top right of any screen.

  • All (1)
  • Unknown (1)
None of your libraries hold this item.
None of your libraries hold this item.
None of your libraries hold this item.
None of your libraries hold this item.
None of your libraries hold this item.
None of your libraries hold this item.
None of your libraries hold this item.
None of your libraries hold this item.

User activity


e.g. test cricket, Perth (WA), "Parkes, Henry"

Separate different tags with a comma. To include a comma in your tag, surround the tag with double quotes.

Be the first to add a tag for this edition

Be the first to add this to a list

Comments and reviews

What are comments? Add a comment

No user comments or reviews for this version

Add a comment