Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/125103
Authors: 
Kucinskas, Simas
Year of Publication: 
2015
Series/Report no.: 
Tinbergen Institute Discussion Paper 15-101/VI
Abstract: 
I revisit the Diamond-Dybvig model of liquidity insurance in the presence of hidden trades. The key result is that in this environment deposit-taking banks are not necessary for the efficient provision of liquidity. Mutual funds are constrained efficient when supplemented with the same government liquidity regulation that is required to make a banking system constrained efficient. However, whereas banks are potentially subject to costly panics, mutual funds are not run-prone and hence superior from a welfare perspective if runs happen with a non-zero probability.
Subjects: 
Liquidity creation
liquidity insurance
hidden trades
bank runs
mutual funds
narrow banking
financial stability
JEL: 
D91
E61
G21
G23
G28
Document Type: 
Working Paper

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