Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/162683
Authors: 
Allen, Franklin
Carletti, Elena
Goldstein, Itay
Leonello, Agnese
Year of Publication: 
2017
Series/Report no.: 
ECB Working Paper 2032
Abstract: 
Banks are intrinsically fragile because of their role as liquidity providers. This results in under-provision of liquidity. We analyze the effect of government guarantees on the interconnection between banks' liquidity creation and likelihood of runs in a model of global games, where banks.and depositors' behavior are endogenous and affected by the amount and form of guarantee. The main insight of our analysis is that guarantees are welfare improving because they induce banks to improve liquidity provision although in a way that sometimes increases the likelihood of runs or creates distortions in banks' behavior.
Subjects: 
panic runs
fundamental runs
government guarantees
bank moral hazard
JEL: 
G21
G28
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-2754-3
Document Type: 
Working Paper

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