This paper develops an infinite-horizon model of financial institutions that borrow short-term and invest in long-term assets that can be traded in frictionless markets. Because these financial intermediaries perform maturity transformation, they are subject to potential runs. We derive distinct...

The recent financial crisis has shown that short-term collateralized borrowing may be a highly unstable source of funds in times of stress. The present paper develops a dynamic equilibrium model and analyzes under what conditions such instability can be a consequence of market-wide changes in...

This paper develops an infinite-horizon model of financial institutions that borrow short-term and invest in long-term assets that can be traded in frictionless markets. Because these financial intermediaries perform maturity transformation, they are subject to potential runs. We derive distinct...

This paper develops a model of financial institutions that borrow short term and invest in long-term assets that can be traded in frictionless markets. Because these financial intermediaries perform maturity transformation, they are subject to potential runs. We derive distinct liquidity,...

Bank runs in the literature following Diamond and Dybvig (1983) take the form of withdrawals of demand deposits payable in real goods, which deplete a fixed reserve of goods in the banking system. This paper examines modern bank runs, in which withdrawals typically take the form of electronic...

Vesting of equity payments to an entrepreneur, which is a form of time-contingent compensation, is very common in venture capital contracts. Empirical research suggests that vesting is used to help overcome asymmetric information and agency problems. We show in a theoretical model that vesting...

Deposit insurance has been adopted at an accelerating rate by countries around the world, but evidence indicates that it causes increased risk from moral hazard and may be adopted for rent-seeking reasons. A primary justification for deposit insurance is the theoretical literature on bank runs....

Vesting of equity payments to an entrepreneur, which is time contingent compensation, is ubiquitous in venture capital contracts and has been shown empirically to be of economic importance. We show that vesting equity to an entrepreneur over a longer period of time, late vesting, acts as a...

Liquidity hoarding by banks and extreme volatility of the fed funds rate have been widely seen as severely disrupting the interbank market and the broader financial system during the 2007-08 financial crisis. Using a dataset of intraday Federal Reserve bank account balances and Fedwire interbank...

Bank runs in the literature take the form of withdrawals of demand deposits payable in real goods, which deplete a fixed reserve of goods in the banking system. That framework describes traditional bank runs based on currency withdrawals as occurred historically in the US and more recently in...