Bank runs, welfare and policy implications [An article from: Journal of Financial Stability]

This digital document is a journal article from Journal of Financial Stability, published by Elsevier in 2005. The article is delivered in HTML format and is available in your Amazon.com Media Library immediately after purchase. You can view it with any web browser.

Description:
This paper studies the welfare implications of various government policies that have been used to prevent bank runs. The benchmark model suggests that a bank run is a business-cycle-state-related phenomenon and it leads to the failure of the risk-sharing mechanism provided by the banking sector. Extensions of the model show that a number of policy instruments, including the suspension of convertibility of deposits, the taxation on short-term deposits, reserve requirement and blanket guarantee, turn out to be inefficient. Instead, I propose that a limited-coverage deposit insurance scheme or capital requirements can be welfare-improving.