Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/218434 
Authors: 
Year of Publication: 
2010
Citation: 
[Journal:] South African Journal of Business Management [ISSN:] 2078-5976 [Volume:] 41 [Issue:] 1 [Publisher:] African Online Scientific Information Systems (AOSIS) [Place:] Cape Town [Year:] 2010 [Pages:] 51-55
Publisher: 
African Online Scientific Information Systems (AOSIS), Cape Town
Abstract: 
A bank, acting as a central planner under aggregate full certainty, optimizes liquidity allocation by sharing risk between discrete number of depositors. This paper demonstrates the following. (a) It is sufficient to rule out a bank run if all depositors inform the bank their types, patient or impatient, in advance, in a noncommittal manner. There cannot be a bank run because depositors' strategic behaviour induces the bank to act as a central planner under aggregate full certainty. (b) The impossibility of a bank run is consistent with the price mechanism in partial equilibrium; but it may be inconsistent with the price mechanism in general disequilibrium. (c) The paper concludes that the management of risk sharing by banks is not a cause for bank runs.
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Document Type: 
Article

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