Opacity of Banks and Runs with Solvency

In absence of bank risk-taking behavior, opacity is defined as the inability of depositors, speculators and central banker to disentangle default risk and asset's return from the asset's value. We show the conditions under which opacity leads to runs on a solvent bank in equilibrium and uncertainty on fundamental values of the asset. The main repercussion of the opacity is, however, on the central bank's policy response which is inefficient during a banking crisis.

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Year of publication:	2010
Authors:	D'Avino, Carmela ; Lucchetta, Marcella
Institutions:	Volkswirtschaftliche Fakultät, Ludwig-Maximilians-Universität München
Subject:	Opacity \| Bank Runs \| Central Bank Intervention \| Cash-in-Market Pricing

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Extent:	application/pdf
Series:	MPRA Paper.
Type of publication:	Book / Working Paper
Classification:	G1 - General Financial Markets ; E5 - Monetary Policy, Central Banking and the Supply of Money and Credit ; E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination ; G01 - Financial Crises ; G21 - Banks; Other Depository Institutions; Mortgages
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10008490514