Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/200528
Authors: 
Andolfatto, David
Nosal, Ed
Year of Publication: 
2018
Series/Report no.: 
Working Paper 2018-6
Abstract: 
Banking models in the tradition of Diamond and Dybvig (1983) rely on sequential service to explain belief-driven runs. But the run-like phenomena witnessed during the financial crisis of 2007-08 occurred in the wholesale shadow banking sector where sequential service is largely absent, suggesting that something other than sequential service is needed to help explain runs. We show that in the absence of sequential service runs can easily occur whenever bank-funded investments are subject to increasing returns to scale consistent with available evidence. Our framework is used to understand and evaluate recent banking and money market regulations.
Subjects: 
bank runs
increasing returns to scale
mechanism design
JEL: 
G01
G21
G28
Persistent Identifier of the first edition: 
Document Type: 
Working Paper
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