Does the level of deposits matter for bank fragility and efficiency? In a banking model with endogenous bank runs and a consumption-saving decision, we show that the level of deposits has opposite effects on bank fragility depending on the nature of bank runs. In an economy with panic-driven...

In financial crises, the premium on liquid assets such as US Treasuries increases alongside credit spreads. This paper explains the link between the liquidity premium and spreads. We present a theory of endogenous bank fragility arising from a coordination friction among bank creditors. The...

We study the welfare implications of self-fulfilling bank runs and liquidity requirements, in a growth model where banks, facing persistent possible runs, can choose in any period a run-proof asset portfolio. In this framework, runs distort banks' insurance provision against idiosyncratic...

We study a novel mechanism through which systemic risk, in the form of self-fulfilling runs, forces the banks to hoard liquidity. To this end, we develop an environment where banks offer insurance to their depositors against both idiosyncratic and aggregate real uncertainty, by holding a...

We report evidence that bank liquidity ratios (liquid assets as a percentage of total assets) decrease during the process of economic development. To reconcile this observation with the increasing importance of financial markets and the increasing direct participation of individual investors in...

How does the availability of alternative investment opportunities for banks' depositors affect the reaction of the banking system to aggregate liquidity shocks? And what are the implications, if any, for banking regulation? To answer these questions, I study a Diamond-Dybvig environment, where...