We examine banking regulation in a macroeconomic model of bank runs. We construct a general equilibrium model where banks may default because of fundamental or self-fulfilling runs. With only fundamental defaults, we show that the competitive equilibrium is constrained efficient. However, when...

We develop a quantitative equilibrium model of financial crises to assess the interaction between ex-post interventions in credit markets and the buildup of risk ex ante. During a systemic crisis, bailouts relax balance sheet constraints and mitigate the severity of the recession. Ex ante, the...

This paper studies debt fragility and the sharing of the resulting strategic uncertainty through ex post bailouts. Default arises in equilibrium because of both fundamental shocks and beliefs. The probability of default depends on borrowing rates and, in equilibrium, on the beliefs of lenders...

Both investors and borrowers are concerned about liquidity. Investors desire liquidity because they are uncertain about when they will want to eliminate their holding of a financial asset. Borrowers are concerned about liquidity because they are uncertain about their ability to continue to...

In this paper we revisit the debate over the role of the banking panics in 1930-33 in precipitating the Great Contraction. The issue hinges over whether the panics were illiquidity shocks and hence in support of Friedman and Schwartz (1963) greatly exacerbated the recession which had begun in...

This essay shows that government credit-allocation schemes generate incentive conflicts that undermine the quality of bank supervision and eventually produce banking crisis. For political reasons, most countries establish a regulatory culture that embraces three economically contradictory...

Even after controlling for local economic conditions, differences in state bank supervision and regulation contribute toward explaining the large variation in state bank suspension rates across U.S. counties during the Great Depression. More stringent capital requirements lowered suspension...