This paper introduces the possibility of signaling into a finite-depositor version of the Diamond-Dybvig model. More … observable by signaling, at a cost. Depositors consecutively decide whether to withdraw their funds or continue holding balances … in the bank, and they choose if they want to signal the latter decision. If the cost of signaling is moderate, then bank …

This paper introduces the possibility of signaling into a finite-depositor version of the Diamond-Dybvig model. More … observable by signaling, at a cost. Depositors decide consecutively whether to withdraw their funds or continue holding balances … in the bank, and they choose if they want to signal the latter decision. If the cost of signaling is moderate, then bank …

diminishes their incentives to thwart default. This paper introduces a model of coordination failure to analyze how a … relationship bank affects the incidence of forbearance lending and soft budget constraints by signaling its credit decision to … other creditors. We find that the relationship bank's signaling ability enhances its incentives to engage in forbearance …

coordination failures among depositors, the two main culprits identified in the literature. Depositors withdraw when they observe …