Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/212318 
Year of Publication: 
2015
Series/Report no.: 
Bank of Finland Research Discussion Papers No. 10/2015
Publisher: 
Bank of Finland, Helsinki
Abstract: 
​Concern that government may not guarantee bank deposits in a future crisis can cause a bank run. The government may break its guarantee during a severe crisis because of time-inconsistent preferences regarding the use of public resources. However, as deposits are with-drawn during the bank run, the size of the government's liability to guarantee the remaining deposits is gradually reduced, which increases the government's incentive to provide the promised guarantee. This in turn reduces depositors' incentive to withdraw, which may explain why bank runs sometimes remain partial. Our model yields an endogenously determined probability and size of a partial bank run. These depend on a common signal as to the future state of the economy, the cost of liquidity provision to banks, and the government's reputational cost of breaking the deposit guarantee. We apply the model to a multi-country deposit insurance scheme, an idea that has been aired in the context of the European Banking Union.
JEL: 
G21
G28
Persistent Identifier of the first edition: 
ISBN: 
978-952-323-043-9
Document Type: 
Working Paper

Files in This Item:
File
Size





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