New security designs, improvements in computer telecommunications technology and advances in the theory of finance have led to revolutionary changes in the structure of financial markets and institutions. This paper provides a functional perspective on the dynamics of institutional change and...

The majority of bank liabilities are deposits typically not withdrawn for extended periods. We propose a dynamic model of banks in which depositors forecast banks' leverage and default decisions, and withdraw optimally by trading off current against future liquidity needs. Endogenous deposit...