American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Bank Runs, Fragility, and Credit Easing
American Economic Review
(pp. 2073–2110)
Abstract
We present a tractable dynamic general equilibrium model of self-fulfilling bank runs, where banks trade capital in competitive and liquid markets but remain vulnerable to runs due to a loss of creditor confidence. We characterize how the vulnerability of an individual bank depends on its leverage position and the economy-wide asset prices. We study the effect of credit easing policies, in the form of asset purchases. When a banking crisis is generated by runs, credit easing can reduce the number of defaulting banks and enhance welfare. When the crisis is driven by fundamentals, credit easing may have adverse consequences.Citation
Amador, Manuel, and Javier Bianchi. 2024. "Bank Runs, Fragility, and Credit Easing." American Economic Review 114 (7): 2073–2110. DOI: 10.1257/aer.20220328Additional Materials
JEL Classification
- E32 Business Fluctuations; Cycles
- E44 Financial Markets and the Macroeconomy
- E58 Central Banks and Their Policies
- G01 Financial Crises
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
- G28 Financial Institutions and Services: Government Policy and Regulation
- G33 Bankruptcy; Liquidation