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...

We study time-consistent bank resolution mechanisms. When interventions are ex post efficient, a government cannot commit not to inject capital into the banking system. Contrary to common wisdom, we show that the government may still avoid moral hazard and implement the first best allocation by...

Speculative runs on asset price fixing schemes are most often attributed either to an inexplicable mass hysteria or to a sudden, unpredictable random disturbance. Such attribution places runs and panics outside of the realm of scientific inquiry. Alternatively, in this paper I define the notion...

We offer a new explanation of loan syndicate structure based on banks' comparative advantage in managing systematic liquidity risk. When a syndicated loan to a rated borrower has systematic liquidity risk, the fraction of passive participant lenders that are banks is about 8% higher than for...

This paper discusses the role for a lender of last resort (LLR) in preventing banking panics (section I) , then briefly considers classical and more recent concepts of the LLR (section II). Section III examines historical evidence for the U.S. and other countries on the incidence of banking...

We study a modification of the Diamond and Dybvig (1983) model in which the bank may hold a liquid asset, some depositors see sunspots that could lead them to run, and all depositors have incomplete information about the bank's ability to survive a run. The incomplete information means that the...

Since August 1995, Japanese banks have had to pay a premium on Eurodollar and Euroyen interbank loans relative to their U.S. and U.K. competitors. This so-called Japan premium' provides a market indicator of investor anxiety about the ability of Japanese banks to repay loans. We examine the...

Available studies on asymmetries in the monetary transmission mechanism within Europe are invariably based on macro-economic evidence: such evidence is abundant but often contradictory. This paper takes a different route by using micro-economic data. We use the information contained in the...

We present a tractable dynamic macroeconomic model of self-fulfilling bank runs. A bank is vulnerable to a run when a loss of investors' confidence triggers deposit withdrawals and leads the bank to default on its obligations. We analytically characterize how the vulnerability of an individual...

We consider bank panic models in which, depending on the configuration of fundamentals, there can be a positive probability of a bank panic. A crucial assumption in these models is that new equity cannot enter in a panic. We quantify the importance of this assumption by computing the minimal...