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We provide an overview of the relationship between financial networks and systemic risk. We present a taxonomy of different types of systemic risk, differentiating between direct externalities between financial organizations (e.g., defaults, correlated portfolios, fire sales), and perceptions and feedback effects (e.g., bank runs, credit freezes). We also discuss optimal regulation and bailouts, measurements of systemic risk and financial centrality, choices by banks regarding their portfolios and partnerships, and the changing nature of financial networks.

In this study, we develop a generic Markov model that tracks in real-time and forecasts the potential contagion of bank runs during severe contractionary economic cycles. The proposed model aims to assist regulatory bodies that supervise heterogeneous banking systems by offering an adaptable monitoring scheme. The model calibrates a few input variables including initial cash withdrawals, bank idiosyncratic initial failure rates, allocated proportions of cash withdrawals, and a contagion market factor of bank runs, and it concludes with designated measures for the overall strength of a banking system and for the expected time until a banking system failure, as predefined by policymakers. We also illustrate the functionality of the model along three hypothetical banking systems and further deploy numerical examples and sensitivity analyses, which reveal that initial bank failure rates play a bigger role in the propagation of bank runs than the contagion market factor.

Could experiencing a health pandemic aid in understanding the nature of financial crisis? It might, for example, help to discriminate between different narratives that claim to do so. In this spirit, two influential accounts of the near-collapse of shadow banking in the US financial crisis of 2008 are analysed: one developed by Mark Gertler and Nobuhiro Kiyotaki and the other presented by the Financial Crisis Inquiry Commission of the US Congress. Using a common two-sector framework, key features of these contrasting accounts of the market for banking services are presented, along with their corresponding diagnoses of what precipitated financial crisis. To see what the experience of Covid might imply about their relative credibility, four aspects of the current pandemic are considered: how it began from a small biological shock; how it gets spread by contagion; the significance of externalities; and how it may end with a vaccine. But the reader is left to form his or her own judgement.

The impact of external financing on the economies of developing countries is still a subject of debate among economists and policy makers. The objective of this paper is to contribute to this debate by shedding light on the interaction between foreign direct investment (FDI) and external debt. To this end, we begin by formulating an overlapping generation growth model that integrates a banking sector and find two complementary results. First, we show that external financing boosts investment projects and accelerates the dynamic of capital accumulation and economic growth. The second one mitigates this channel by showing two opposite indirect effects of external debt and FDI. Indeed, while external debt financing increases the vulnerability to a bank run that generates a recessionary impact on economic growth, FDI attenuates this recessionary impact and plays the role of a shock absorber. We empirically confirm these results for 67 developing countries over the period 1972–2015 using the GMM estimation of growth models and panel‐logit models to predict the determinants of banking crises. Hence, this study provides a comprehensive assessment of developing countries’ involvement in financial globalization and offers recommendations for their future international economic policies.

With growing interest in the effects of financial conditions on the real economy after the global financial crisis, this study constructs a Korean financial conditions index and examines the effects of the Korean and the US financial conditions on future Korean GDP growth using quantile regression models. We find that the impact of Korean financial conditions on the future GDP growth of Korea is asymmetric in quantiles. The deterioration of financial conditions expands only the left tail of the distribution of next quarter's GDP growth and sometimes makes the distribution bimodal, implying the existence of multiple equilibria of bank runs and no bank runs distributions. The extended quantile regression model with US variables shows that the deterioration of US financial conditions expands both of the left and right tails of the distribution of the Korean GDP growth, increasing its variance.

We develop a model of banking panics which is consistent with two important features of the data: First, banking crises are usually preceded by credit booms. Second, credit booms often do not result in crises. That is, there are “bad booms” as well as “good booms” in the language of Gorton and Ordonez (2019) . We then consider how the optimal macroprudential policy weighs the benefits of preventing a crisis against the costs of stopping a good boom. We show that countercyclical capital buffers are a critical feature of a successful macroprudential policy.

This article studies the effect of liquidity crises in short-term debt markets in a dynamic general equilibrium framework. Creditors (retail banks) receive imperfect signals regarding the profitability of borrowers (wholesale banks) and, based on these signals and their beliefs about other creditors’ actions, choose whether to roll over funding, or not. The unco-ordinated actions of creditors cause a suboptimal incidence of rollover, generating an illiquidity premium. Leverage magnifies this co-ordination inefficiency. Illiquidity shocks in credit markets result in sharp contractions in output. Policy responses are analysed.

The goal of this article is to investigate the roles of individual behavior characteristics and Internet finance industry risk in the light of bank run theory for P2P. We know that risk evaluation is clearly important for peer-to-peer (P2P) lending platforms in China, as during the last two years, the industry has experienced thousands of platform crashes. Traditional approaches to evaluate enterprise risk are increasingly ineffective in this industry, due to the difficulty of assessing the real information. In addition, the Internet business model makes it possible to record new kinds of information. By applying a data-driven analytics method, we build an intelligent risk evaluation model for P2P platforms that have comparable targeting platforms. The case study shows that our risk evaluation method can generate early warning signals regarding platform or industry risk, which is able to provide effective supporting for P2P business in practice.

2007-2008küresel finansal krizi boyunca ve sonrasında farklı batı ülkelerinde yaşanan veeski hayaletin uyanması olarak da değerlendirilebilen banka hücumlarınıngörülmesi ile bu banka hücumlarının oluşumu ve bunları etkileyen temelfaktörler için yapılan çalışmalara duyulan ihtiyaç artmıştır. Küresel finansalkrizden önce, banka hücumları hakkında sadece iki adet deneysel araştırma vardı.Bankacılık ve finans alanında deneysel yöntemlerin popülerleşmesi ve sonküresel finansal krizin sonucu olarak bu alandaki makale sayısı son on yılda hızlaartmıştır. Bu makale, banka hücumları ile ilgili deneysel araştırmaları analizederek bu alana ilişkin bir literatür taraması yapmaktadır. Literatürtaramasının sonuçları, iki yol ayrımını ortaya koymaktadır. Literatürdekiçalışmaların bir kolu, psikolojik faktörler dikkate alınarak konuya dahabireysel bir düzeyde yaklaşırken, diğer makaleler çoğunlukla bulaşıcılıketkileri gibi banka faaliyetlerinin makro etkileriyle ilgilenmektedirler., With the bank runs experienced indifferent western countries during and after the 2007-2008 global financialcrisis, bank run phenomena can be seen as the awakening of a ghost in financialmarkets, which is a definite call for research for the fundamental factors thatderive bank runs. Prior to the global financial crisis there were only twoexperimental researches of bank runs. Parallel with the experimental methods beingpopular in finance and the latest global financial crisis, the number of papersin the field has risen sharply. This paper reviews the state of art for theexperimental researches of bank runs. The results of the literature reviewindicate that some papers are approaching to the issue in a more individuallevel by taking into account psychological factors, while other papers aremostly interested in macro impacts of bank runs, such as contagion effects.

This paper examines the effect of two psychological attributes, namely an individual’srisk and time preference, on withdrawal decisions. Our sample is a pool of primedepositors in Indonesia, mainly due to the country’s deposit market being heavilyconcentrated on such depositors. We find that most of the prime depositors are riskaverse long-term depositors. The regression results show that there is a significantcorrelation between the decision to withdraw and individual risk and time preferencein most economic shock scenarios. The study concludes that a bank-run could happenif the rupiah depreciates by approximately 27% (from Rp 13,436 to Rp 17,000) andwhen there is a medium or a large bank failure.

In a Diamond–Dybvig type model of financial intermediation, we allow depositors to announce at a positive cost to subsequent depositors that they keep their funds deposited in the bank. Theoretically, the mere availability of public announcements (and not its use) ensures that no bank run is the unique equilibrium outcome. Multiple equilibria—including bank run—exist without such public announcements. We test the theoretical results in the lab and find a widespread use of announcements, which we interpret as an attempt to coordinate on the no bank run outcome. Withdrawal rates in general are lower in information sets that contain announcements.

What is the effect of cash injections during financial crises? Exploiting county-level variation arising from random weather shocks during the 1980s Farm Debt Crisis, we analyze and measure the effect of local weather-driven cash flow shocks on the real and financial sectors. We show that such cash flow shocks significantly affect a host of economic outcomes, including land values, loan delinquency rates, the probability of bank failure, employment, and wages. Estimates of the effect of local cash flow shocks on county income levels during the financial crisis yield a multiplier of 1.63.

An important problem in public finance is the interaction of public finance with private finance—particularly when private financial markets crash, then bank runs occur, and a central bank needs to bail out the banks to prevent an economic depression. Historically, private financial markets have periodically crashed (financial bubbles); and then public finance (central bank reserves) have sometimes bailed out banks, to prevent a depression. The reason this pattern (of a lack of regulation to prevent financial bubbles, but then bailing out banks) has historically recurred has been the use of an idealized economic theory of “perfect market”—used in economic policy to avoid appropriate regulation of a financial market. In this research, we formulate a “game-theoretic approach” to include financial regulation as an explicit part of the model of a financial market. Future research direction from this game approach can extend the traditional “endogenous economic theory of markets” into an empirical modeling technique—which can ground economic theory in the real history of market instabilities.

This paper applies a model of bank run based on game theory analysis of options to the real world case of the Czech retail bank Air Bank a. s. We discuss the main factors affecting the susceptibility of Czech banks to bank run. We estimate the equity value which triggers bank run for Air Bank´s a. s. clients. We also simulate a possible bank run, using a liquidity stress test, which is similar to stress tests used by some European supervisory authorities. We provide alternative estimates of critical value of bank's equity after the attainment of which depositors withdraw their deposits and by doing so trigger a bank run.

We use the German Crisis of 1931, a key event of the Great Depression, to study how depositors behave during a bank run in the absence of deposit insurance. We find that deposits decline by around 20 percent during the run and that there is an equal outflow of retail and nonfinancial wholesale deposits from both ex-post failing and surviving banks. This implies that regular depositors are unable to identify failing banks. In contrast, the interbank market precisely identifies which banks will fail: the interbank market collapses for failing banks entirely but continues to function for surviving banks, which can borrow from other banks in response to deposit outflows. Since regular depositors appear uninformed, it is unlikely that deposit insurance would exacerbate moral hazard. Instead, interbank depositors are best positioned for providing "discipline" via short-term funding.

Central banks create money to lend during credit crunches, which might lead to inflation. We examine whether the two key functions of central banks - price stability and last-resort lending - conflict. We develop a nominal model of bank runs à la Diamond and Dybvig (1983) in which individuals can store the money they withdraw "under the mattress" or use it to buy assets. This feature allows for lending of last resort without creating inflation. Our analysis also provides a new rationale for the "Bagehot rule": High interest rates prevent inflation, rather than mitigate the risk of lending during credit crunches.

PurposeThe purpose of this paper is to analyze how response time in a laboratory experiment on bank runs affects withdrawal decisions.Design/methodology/approachIn the authors’ setup, the bank has no fundamental problems, depositors decide sequentially whether to keep the money in the bank or to withdraw, and they may observe previous decisions depending on the information structure. The authors consider two levels of difficulty of decision-making conditional on the presence of strategic dominance and strategic uncertainty. The authors hypothesize that the more difficult the decision, the longer is the response time, and the predictive power of response time depends on difficulty.FindingsThe authors find that response time is longer in information sets with strategic uncertainty compared to those without (as expected), but the authors do not find such relationship when considering strategic dominance (contrary to the hypothesis). Response time correlates negatively with optimal decisions in information sets with a dominant strategy (contrary to the expectation) and also when decisions are obvious in the absence of strategic uncertainty (in line with the hypothesis). When there is strategic uncertainty, the authors find suggestive evidence that response time predicts optimal decisions.Research limitations/implicationsBeing a laboratory experiment, it is questionable if depositors in real life behave similarly (external validity).Practical implicationsSince episodes of bank runs are characterized by strategic uncertainty, the result that under strategic uncertainty, longer response time leads to better decisions suggests that suspension of convertibility is a useful tool to curb banking panics.Originality/valueTo the best of authors’ knowledge, this is the first study concerning the relationship between response time and the optimality of decisions in a bank-run game.

We present a tractable dynamic macroeconomic model of self-fulfilling bank runs. A bank is vulnerable to a run when a loss of investors' confidence triggers deposit withdrawals and leads the bank to default on its obligations. We analytically characterize how the vulnerability of an individual bank depends on macroeconomic aggregates and how the number of banks facing a run affects macroeconomic aggregates in turn. In general equilibrium, runs can be partial or complete, depending on aggregate leverage and the dynamics of asset prices. Our normative analysis shows that the effectiveness of credit easing and its welfare implications depend on whether a financial crisis is driven by fundamentals or by self-fulfilling runs.

The COVID-19 run on medical resources crashed Wuhan’s medical care system, a medical disaster duplicated in many countries facing the COVID-19 pandemic. In a novel approach to understanding the run on Wuhan’s medical resources, we draw from bank run theory to analyze the causes and consequences of the COVID-19 run on Wuhan’s medical resources and recommend policy changes and government actions to attenuate runs on medical resources in the future. Like bank runs, the cause of the COVID-19 medical resource run was rooted in China’s local medical resource context and a sudden realignment of expectations, reflecting shortages and misallocations of hospital resources (inadequate liquidity and portfolio composition), high level hospitals siphoning-off patients from lower level health providers (bank moral hazard and adverse selection problem), patients selecting high-level hospitals over lower-level health care (depositor moral hazard problem), inadequate government oversight and uncontrolled risky hospital behavior (inadequate bank regulatory control), biased medical insurance schemes (inadequate depositor insurance), and failure to provide medical resource reserves (failure as lender of last resort). From Wuhan’s COVID-19 run on medical resources, we recommend that control and reform by government enlarge medical resource supply, improve the capacity of primary medical care, ensure timely virus information, formulate principles for the allocation of medical resources that suit a country’s national conditions, optimize the medical insurance schemes and public health fund allocations and enhance the emergency support of medical resources.

This paper conducts a comprehensive review of relevant empirical literature on the impact of capital structure on bank’s liquidity risk. Based on the existing literature, capital structure has a considerable impact on banks’ liquidity risk either in positive or negative thought. However, we discover that empirical evidence on all of this relationship is heavily skewed in favour of conventional banks and firm’s perspective. As a result, we urge that further research should be done in this area specifically in Islamic banking standpoint in order to gain a better understanding of the impact of capital structure on banks liquidity risk. This is due to the fact that the optimal capital structure for bank will trade-off the effects of bank capital specifically on the liquidity creation. Therefore, it is hoped that this paper can give a guideline to the policymakers, banking regulators, shareholders and other stakeholders to balance between capital structure and liquidity creation in order to evade from the issues of bank run and insolvency.

The work for this thesis was done during the period 2010 to 2016, after the worst financial crisis since the Great Depression, and in the immediate wake of the Eurozone debt crisis that has casted doubts on European integration. With the crisis largely blamed on bank excessive risk-taking and supervisors’ inability to contain it, and with the aim to prevent similar crises in the future, much of the policy discussions and regulatory actions have focused on ways to address both of these failures of market economies. One way concerns the strengthening of market discipline, i.e., strengthening the incentives and capacity of external stakeholders (depositors, shareholders and other holders of bank liabilities) to induce more prudent risktaking behavior by bank managers. Thus motivated, this thesis focuses on the channels and effectiveness of market discipline. Said differently, it explores whether, and how, market forces could be trusted to do a better job in containing risk-taking behavior by banks and thus effectively support and supplement supervisors’ efforts. From a policy-making point of view, the thesis explores whether market discipline can promote financial stability. The thesis comprises of three empirical papers. The first explores whether the expected government support of banks, implicit or explicit, weakens market discipline. The second explores whether the intrusive external monitoring by knowledgeable and influential external stakeholders fosters more prudent loan-loss provisions and, hence, more prudent accounting practices by banks. The third paper extends the second, taking into account the role of the institutional and social environment in an international setting. The results from all three papers are supportive of the notion that market discipline can promote financial stability. Details follow. The first paper explores whether expected government support weakens market discipline by bank shareholders, especially after the eruption of the global financial crisis in 2008. Two counter-veiling forces are at work. On the one hand, as it is suggested by the related literature, the expected support may give banks greater leeway to undertake risks, for it reduces the monitoring incentives of depositors and other bank creditors. Shareholders, recognizing the resultant higher probability of default as well as the possibility that they might be wiped out in case of bank default, have an incentive to intensify monitoring and exercise stronger market discipline. On the other hand, the expected support may also reduce the possibility of a bank run, weakening as a result the need for monitoring by bank shareholders and, hence, market discipline on their part. Expected support is measured as the difference of two bank credit ratings from Moody’s: an all-in rating, which encompasses expected support, and a stand-alone rating, which does not. We estimate a model in which a forward-looking measure of shareholder value, the market-to-book ratio, is the dependent variable and the measure of expected support is one of the explanatory variables. A negative coefficient of the expected support would be consistent with market discipline for it would indicate that shareholders are willing to pay less for banks with higher expected support The results, from a sample of about 250 banks worldwide, indicate that, far from weakening market discipline by shareholders, the expected support strengthens it, and more so for the riskier banks – i.e., those with lower stand-alone rating. The results also highlight the two counter-veiling effects of the expected support on market discipline. Specifically, as the size of the expected support increases, its negative effect on the market-to-book ratio decreases. The second paper sheds light on earnings management via loan-loss provisions (LLPs) and the associated trade-off between financial-statement transparency and financial stability, by exploiting time and cross-sectional variation. The time variation pertains to the welldocumented shift towards more forward-looking LLPs after the crisis of 2008. The working hypothesis is that the rules concerning LLPs effectively shifted in favor of forward-looking provisions. This shift is expected to be associated with stronger income smoothing and signaling, and more so for banks subject to weaker market discipline. The cross sectional variation pertains to the intrusive external monitoring by funds that are members of the US Sustainability Investment Forum (USSIF). The working hypothesis is that this process amounts to stronger monitoring and, hence, stronger market discipline. Thus, it is expected that income smoothing and signaling will be weaker for the banks in which USSIF funds invest relative to the remaining banks. Moreover, after the said shift in supervisory and regulatory preferences, income smoothing and signaling will increase by less for banks in which USSIF funds invest. The results, from a sample of more than 300 publicly-held US bank holding companies, over the period 1999 – 2014, confirm that the banks under the intrusive monitoring exhibit less earnings management. Since, however, this differential behavior got more pronounced after the regulatory shift, the results further suggest that USSIF funds induce provisioning behavior that goes well beyond the stricter application of the existing accounting and supervisory rules, thus ameliorating the aforementioned trade-off. The third paper explores whether the inclusion of a bank in the Dow Jones Sustainability Index (DJSI) reduces bank managers’ incentives for earnings management through loan-loss provisions. The inclusion in the DJSI depends on a rigorous bank assessment, conducted each year. The working hypothesis is that being included in the DJSI constitutes a credible signal to outside stakeholders of prudent behavior. An aspect of such behavior is less earnings management through loan-loss provisions. The results from a sample of 297 banks around the globe, over the period 2004 – 2010, indicate that banks included in the DJSI engage in less earnings management relative to the banks that were assessed but not included. This more prudent provisioning behavior persists when we control for the strength of private sector monitoring with country-level indices for private sector monitoring and the quality of external audits. Yet, it largely diminishes when we control for the strength of supervisory power and capital regulation. The last result poses an interesting question: Is stronger supervision a substitute of market discipline? Or, is the DJSI assessment process geared towards accepting more banks from countries with stronger supervision; All in all, the papers in this thesis highlight the important and decisive role market discipline plays in the financial system. They suggest that shareholders, probably driven by the objective difficulty of accurately assessing banks’ true condition and prospects, appreciate credible signals of prudent behavior. The results are also supportive of the power of external monitoring as a restraining factor in bank-managers’ risk-taking.

Capital requirements involve a trade-off between financial intermediation and financial stability. I analyze this trade-off in a macroeconomic model that allows for systemic bank runs, a la Gertler and Kiyotaki (2015). I show that fixed capital requirements make the economy more prone to runs because they slow down the recovery and reduce welfare compared to the laissez-faire benchmark. On the other hand, appropriately chosen countercyclical capital requirements can increase financial stability and welfare. To weigh the costs and benefits of this policy, I estimate the probability of a systemic shock to the financial sector using a novel measure derived from CDS data and find it to be around 0.5% per year prior to the 2007-09 financial crisis. I then show that implementing a countercyclical capital requirement that would have prevented the run on repo markets in 2008 would have cost 3% of steady-state bank capital and less than 0.1% in consumption terms.

We argue that bank holding companies (BHCs) extend shadow insurance to the prime institutional money market funds (PI-MMFs) they sponsor and that PI-MMFs price this shadow insurance by charging investors significantly higher expense ratios and paying lower net yields. We provide evidence that after September 2008, expense ratios at BHC-sponsored PI-MMFs increased more than at non-BHC-sponsored PI-MMFs. Despite higher expense ratios, BHC-sponsored PI-MMFs did not experience larger redemptions than non-BHC-sponsored PI-MMFs. In addition, we show that expense ratios increased with BHCs’ financial strength and the likelihood of their support; however, this expense ratio differential disappeared after the 2016 MMF reform. (JEL G2, G21, G23, G28, H12, H81)

We study experimentally an instrument to prevent bank runs in healthy banks. In particular, we extend the basic bank-run game, where depositors choose between withdrawing or keeping their money deposited, with a third option, the possibility to relocate funds to a priority account that is less profitable, but which guarantees a payoff even in a bank run. Theoretically, the use of this instrument dominates withdrawals for depositors without liquidity needs, and given this fact, depositors should optimally keep their deposits in the bank, so no bank run shall happen. In our experiment, we find evidence that the mechanism reduces not only bank runs that occur because of a coordination problem among depositors, but also panic bank runs that occur when depositors can observe the action of others. However, its effectiveness is limited and depositors seem not to recognize the protection it provides., Spanish Government ECO2014-58297-R PGC2018-097875-A-I00 ECO2017-82449-P ECO2016-76178-P, Hungarian Academy of Sciences LP2021-2, MCIN/AEI ECO2017-82449-P ECO2016-76178-P B-SEJ-206-UGR20 PID2019-107192GB-I00

PurposeIn the transitional process of promoting market-oriented interest rate, China is confronted with an important theoretical and practical issue: how to avoid bank runs and realize the smooth operation of the financial system. The purpose of this paper is to construct a bank-run dynamic model by taking into account a market environment with the transmission of multiple rounds of noise information, a comprehensive consideration of depositors’ expectation of return on assets (or earning rate/yields of assets), the efficiency of information processing and dissemination, and the different motives for premature withdrawal.Design/methodology/approachThe authors discussed the dynamic process of bank runs, furnished the ratio and number of each round of bank run, and characterized the corresponding dynamic equilibrium as well. Furthermore, the authors expanded the benchmark model by incorporating the deposit insurance system (DIS) to discuss the action mechanism of DIS overruns.FindingsThe results show that DIS implementation has two opposite effects: stabilized expectation and moral hazard, by virtue of its influence over the two types of premature withdrawal motives of depositors; the implementation effect of DIS rests with the dual-effect comparison, which is endogenous to the institutional environment.Originality/valueThe policy implications are as follows: while implementing DIS, it is necessary to establish and improve the corresponding institutional construction and supporting measures, to consolidate market discipline and improve the supervisory role of the bank’s internal governance mechanism, so as to reduce the potential moral hazards. The financial system reform shall be furthered and the processing and dissemination efficiency of information be elevated to prompt depositors to form stable withdrawal expectations, thereby enhancing the stabilizing effect of DIS.

© 2018 Elsevier Inc. Financial institutions are financed by both investors and customers. Investors expect an appropriate risk-adjusted return for providing financing and risk bearing. Customers, in contrast, provide financing in exchange for specific services, and want the service fulfillment to be free of the intermediary's credit risk. We develop a framework that defines the roles of customers and investors in intermediaries, and use it to build an economic theory that has the following main findings. First, with positive net social surplus in the intermediary-customer relationship, the efficient (first best) contract completely insulates the customer from the intermediary's credit risk, thereby exposing the customer only to the risk inherent in the contract terms. Second, when intermediaries face financing frictions, the second-best contract may expose the customer to some intermediary credit risk, generating “customer contract fulfillment” costs. Third, the efficiency loss associated with these costs in the second best rationalizes government guarantees like deposit insurance even when there is no threat of bank runs. We further discuss the implications of this customer-investor nexus for numerous issues related to the design of contracts between financial intermediaries and their customers, the sharing of risks between them, ex ante efficient institutional design, regulatory practices, and the evolving boundaries between banks and financial markets.

This article incorporates banks and banking panics within a conventional macroeconomic framework to analyse the dynamics of a financial crisis of the kind recently experienced. We are particularly interested in characterizing the sudden and discrete nature of banking panics as well as the circumstances that make an economy vulnerable to such panics in some instances but not in others. Having a conventional macroeconomic model allows us to study the channels by which the crisis affects real activity both qualitatively and quantitatively. In addition to modelling the financial collapse, we also introduce a belief driven credit boom that increases the susceptibility of the economy to a disruptive banking panic.

We experimentally test a new extension of the Diamond and Dybvig model with two banks where, in addition to keeping and withdrawing, depositors of the first bank can relocate their deposits to the second bank at no cost. In contrast to the second bank, the first bank experiences more panics, although the number of simultaneous bank runs decreases. We highlight the importance of studying bank runs as a system-related phenomenon where depositors can change their initial deposit allocation.

We examine the effect of bank culture on financial stability through the lens of bank lending decisions. Using the Competing Value Framework developed in organizational behavior research, we measure bank culture along four distinct dimensions: compete, create, control, and collaborate. We find that compete-dominant banks are associated with riskier lending practices – higher approval rate, lower borrower quality, and fewer covenant requirements. These banks exhibit higher loan growth, but incur larger loan losses. As a result, they make greater contributions to systemic risk. We find the opposite results among control-dominant banks, whose culture emphasizes control and safety. Our findings cannot be explained by the bank business models, CEO compensation incentives and CEO characteristics. To establish causality, we use the exogenous shock to the US banking system during the Russian crisis of Fall 1998.

Most economists differ not on the causes of the Great Recession, but on their relative importance. They agree, however, that the core problem is human, not market failure. Their widely held assessment helps explain why the Dodd-Frank banking “reform” says so much and does so little. This study re-tries the usual suspects and finds none guilty. Instead, it points to multiple equilibria in banking and the overall economy. Whether it is Cooke and Company in 1873 or Lehman Brothers in 2008, leverage and opacity are the wicked brew that stokes bank runs. And bank runs prompt employer runs – laying off your employees (other firms’ customers) for fear that others are laying off their employees (your customers). The answer is fundamental, not cosmetic banking reform that fixes banking and the economy for good. The answer is replacing leveraged, trust-me banking with fully transparent, 100 percent equity-financed mutual fund banking. This reform, called Limited Purpose Banking, handles all aspects of finance, including lending, risk allocation and the payment system. It would permanently end the leveraging of taxpayers by banks and bring a permanent end to financial crises.

The rising of digital currencies and the technology behind them, “blockchain,” draws much attention in many areas. According to the 2021 report of BIS, 86% of the participant central banks are actively researching the potential in this technology. This study attempts to shed light on possible expansion in monetary policy tools by the issuance of CBDC. Thus, it suggests a partial substitution of paper currency. Four design principles have been stated and discussed for a monetary system that includes CBDC and possible solutions regarding the digital bank run., Dijital para birimlerinin yükselişi ve arkasındaki teknoloji olan “blokzincir” pek çok alanda büyük ilgi görmektedir ve BIS'in 2018 raporuna göre katılımcı merkez bankalarının %86'sı aktif bir şekilde söz konusu teknolojiyle ilgili çalışmalar yürütmektedir. Çalışma, CBDC'nin çıkarılmasıyla para politikası araçlarındaki olası genişlemeye ışık tutmaya çalışmaktadır. Bu nedenle, kâğıt paranın kısmen ikame edilmesini önermektedir. Bu çalışmada CBDC'yi ve dijital banka hücumlarıyla ilgili olası çözümleri içeren bir para sistemi için dört tasarım ilkesi belirtilmiş ve tartışılmıştır.

This paper studies the optimal determination of deposit insurance when bank runs are possible. We show that the welfare impact of changes in the level of deposit insurance coverage can be generally expressed in terms of a small number of sufficient statistics, which include the level of losses in specific scenarios and the probability of bank failure. We characterize the wedges that determine the optimal ex-ante regulation, which map to asset- and liability-side regulation. We demonstrate how to employ our framework in an application to the most recent change in coverage, which took place in 2008.

A key policy issue is whether bank bailouts weaken or strengthen market discipline. We address this by analyzing how bank bailouts influence deposit quantities and prices of recipients versus other banks. Using TARP bailouts, we find both deposit quantities and prices decline, consistent with substantially reduced demand for deposits by bailed-out banks that dominate market discipline supply effects. Main findings are robust to numerous checks and endogeneity tests. However, a deeper dive into depositor heterogeneity suggests nuance. Increases in uninsured deposits, transactions deposits, and deposits in banks that repaid bailout funds early suggest some limited support for weakened market discipline.

International audience; Despite France's importance in the interwar world economy, the scale of the French banking crises of 1930–1 and their consequences have never been fully assessed quantitatively. The lack of banking regulation severely limited the availability of balance sheet data. Using a new dataset of individual balance sheets from more than 300 banks, this article shows that the crises were much more severe than previously thought, although they did not affect the main commercial banks. By reconstructing financial flows, this study shows that the fall in bank credit was mostly driven by a flight‐to‐safety by deposits, from banks to savings institutions and the central bank. The decrease in bank deposits due to bank runs was offset by an increase in deposits with savings institutions, with the central bank, and in cash hoarding, whereas the decrease in bank credit was not offset by an increase in loans from non‐bank financial institutions. In line with the gold standard mentality, cash deposited with savings institutions and the central bank was used to decrease marketable public debt and increase gold reserves, rather than pursuing countercyclical policies. Despite massive capital inflows and rising aggregate money supply, France suffered from a severe, persistent credit crunch.