Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/249909 
Year of Publication: 
2022
Series/Report no.: 
ECB Working Paper No. 2636
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
Does the level of deposits matter for bank fragility and efficiency? In a banking model with endogenous bank runs and a consumption-saving decision, we show that the level of deposits has opposite effects on bank fragility depending on the nature of bank runs. In an economy with panic-driven runs, higher deposits make banks less fragile, while the opposite is true when runs are only driven by fundamentals. The effect of deposits is not internalized by depositors. A saving externality arises, leading to excessive fragility and insufficient liquidity provision. The economy features under-saving when runs are panic driven, and over-saving when fundamental driven.
Subjects: 
endogenous bank runs
liquidity provision
fundamental runs
panic runs,saving externality
JEL: 
G01
G21
G28
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-4969-9
Document Type: 
Working Paper

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