Bank Runs, Deposit Insurance, and Liquidity

@article{diamond-dybvig-83, abstract = {This paper shows that bank deposit contracts can provide allocations superior to those of exchange markets, offering an explanation of how banks subject to runs can attract deposits. Investors face privately observed risks which lead to a demand for liquidity. Traditional demand deposit contracts which provide liquidity have multiple equilibria, one of which is a bank run. Bank runs in the model cause real economic damage, rather than simply reflecting other problems. Contracts which can prevent runs are studied, and the analysis shows that there are circumstances when government provision of deposit insurance can produce superior contracts.}, author = {Diamond, Douglas W. and Dybvig, Philip H.}, citeulike-article-id = {355187}, journal = {The Journal of Political Economy}, keywords = {411-1, bankrun, game\_theory, liquidity, tartumicro}, number = {3}, pages = {401--419}, posted-at = {2006-02-26 10:20:10}, priority = {2}, title = {Bank Runs, Deposit Insurance, and Liquidity}, url = {http://www.jstor.org/stable/1837095}, volume = {91}, year = {1983} }

TY - JOUR ID - diamond-dybvig-83 L3 - citeulike-article-id:355187 N2 - This paper shows that bank deposit contracts can provide allocations superior to those of exchange markets, offering an explanation of how banks subject to runs can attract deposits. Investors face privately observed risks which lead to a demand for liquidity. Traditional demand deposit contracts which provide liquidity have multiple equilibria, one of which is a bank run. Bank runs in the model cause real economic damage, rather than simply reflecting other problems. Contracts which can prevent runs are studied, and the analysis shows that there are circumstances when government provision of deposit insurance can produce superior contracts. IS - 3 JF - The Journal of Political Economy EP - 419 TI - Bank Runs, Deposit Insurance, and Liquidity VL - 91 SP - 401 KW - 411-1 KW - bankrun KW - game_theory KW - liquidity KW - tartumicro AU - Diamond, Douglas AU - Dybvig, Philip PY - 1983/// UR - http://www.jstor.org/stable/1837095 ER -