The Welfare Costs of Self‐Fulfilling Bank Runs

ELENA MATTANA; ETTORE PANETTI

doi:10.1111/jmcb.12695

journal article Jun 29, 2020

The Welfare Costs of Self‐Fulfilling Bank Runs

ELENA MATTANA ETTORE PANETTI

Journal of Money, Credit and Banking Vol. 53 No. 2-3 pp. 401-440 · Wiley

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Abstract

AbstractWe 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 shocks, and liquidity requirements resolve this distortion at the cost of a credit tightening. Quantitatively, the welfare costs of self‐fulfilling bank runs are equivalent to a constant consumption loss of up to 2.3% of U.S. GDP. Liquidity requirements might increase these welfare costs by up to 2.4%.

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Details

Published: Jun 29, 2020
Vol/Issue: 53(2-3)
Pages: 401-440
License: View

Authors

Funding

Fonds de la Recherche Scientifique

Cite This Article

ELENA MATTANA, ETTORE PANETTI (2020). The Welfare Costs of Self‐Fulfilling Bank Runs. Journal of Money, Credit and Banking, 53(2-3), 401-440. https://doi.org/10.1111/jmcb.12695

The Welfare Costs of Self‐Fulfilling Bank Runs

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