Bank runs and investment decisions revisited
By: Huberto M. Ennis, Todd Keister.
Contributors: Keister, Todd.
Series: Working paper ;; no. 04-3; Working paper (Federal Reserve Bank of Richmond : Online) ;; no. 04-3.
Publisher: Federal Reserve Bank of Richmond
Published: 2004
Place of publication: [Richmond, Va.]
Language: eng
Format: Electronic resource
Subjects: Bank failures -- Mathematical models.; Bank deposits -- Mathematical models.
Description: "We examine how the possibility of a bank run affects the deposit contract offered and the investment decisions made by a competitive bank.  Cooper and Ross (1998) have shown that when the probability of a run is small, the bank will offer a contract that admits a bank-run equilibrium.  We show that, in this case, the bank will chose to hold an amount of liquid reserves exactly equal to what withdrawal demand will be if a run does not occur.  In other words, precautionary or "excess" liquidity will not be held.  This result allows us to determine how the possibility of a bank run affects the level of illiquid investment chosen by a bank.  We show that when the cost of liquidating investment early is high, the level of investment is decreasing in the probability of a run.  However, when liquidation costs are moderate, the level of investment is actually increasing in the probability of a run"--Federal Reserve Bank of Richmond web site.
Notes: Also available in print.
Includes bibliographical references.
Title from PDF file as viewed on 10/22/2004.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.