Banks' Liquidity Provision and Panic Runs with Recursive Preferences

"How important is it to distinguish relative risk aversion (RRA) from the intertemporal elasticity of substitution (IES) to study banks' provision of liquidity insurance and the effectiveness of deposit freezes against depositors' panic runs? To answer these questions, I develop a Diamond-Dybvig model of banking in which depositors feature recursive preferences. In equilibrium, banks provide liquidity insurance, and a time-consistent deposit freeze prevents panic runs, only if depositors' preferences for an early resolution of uncertainty are sufficiently strong, i.e if RRA is sufficiently larger than the inverse of IES."

Posts récents

Voir tout

Keep Calm and Bank on: Panic-Driven Bank Runs and the Role of Public Communication

Information about #fdic #insurance and communication about #bank #stability by the #federalreserve can reassure depositors and mitigate #bankruns, while communication from political leaders only influ

Natural Disaster Risk and Firm Performance: Text Mining and Machine Learning Approach

Advanced #machinelearning models were found to be more effective than #linearregression in predicting firm performance under #naturaldisaster #risks. The study suggests that textual data in #financial

Evolution of Cybersecurity Disclosure

#regulators recently issued #cybersecurity #disclosure guidelines to enhance #transparency and #accountability among firms. A study analyzed cybersecurity disclosure practices among a sample of Toront