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Savings, Efficiency and the Nature of Bank Runs

Agnese Leonello,Caterina Mendicino,Ettore Panetti,Davide Porcellacchia

Published 2022 in Social Science Research Network

ABSTRACT

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 runs, higher deposits make banks less fragile, while the opposite is true when runs are only driven by fundamentals. The effect of deposits is not internalized by depositors. A saving externality arises, leading to excessive fragility and insufficient liquidity provision. The economy features undersaving when runs are panic driven, and over-saving when fundamental driven. JEL codes: G01, G21, G28

PUBLICATION RECORD

  • Publication year

    2022

  • Venue

    Social Science Research Network

  • Publication date

    Unknown publication date

  • Fields of study

    Not labeled

  • Identifiers
    DOI 10.2139/ssrn.4006854
  • External record

    Open on Semantic Scholar

  • Source metadata

    Semantic Scholar

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