Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/182478
Authors: 
Bucher, Monika
Dietrich, Diemo
Tvede, Mich
Year of Publication: 
2018
Series/Report no.: 
Bundesbank Discussion Paper 39/2018
Abstract: 
We study efficiency properties of competitive economies in which banks provide liquidity insurance and interact on secondary asset markets. While all banks are subject to extrinsic risk, a bank's portfolio choice determines whether it is prone to a bank run in one of the extrinsic states. Asset prices determine the value of bank assets and thus how to structure run-proof portfolios. Except for very large sunspot probabilities, equilibria with trivial sunspots exist, where asset prices are state-dependent, bank runs do not occur and the efficient allocation obtains. Interbank asset markets are also a new source of multiplicity of equilibrium. For low sunspot probabilities, there are equilibria in which all banks are run-prone. For high sunspot probabilities, there is no equilibrium with run-prone banks but consumption can be indeterminate. If the sunspot probability is neither high nor low, equilibria may exist in which some banks are run-prone and others are run-proof.
Subjects: 
Banking
Interbank Asset Markets
Liquidity Insurance
Extrinsic Risk
Financial Stability
JEL: 
G01
G21
D53
ISBN: 
978-3-95729-507-1
Document Type: 
Working Paper

Files in This Item:
File
Size
383.82 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.