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Bank Runs, Lender of Last Resort, Suspension of Convertibility, and Enabling Laws

Author

Listed:
  • Gurbachan Singh

    (Gurbachan Singh is at CITD, SIS, Jawaharlal Nehru University, New Delhi, Room No 107.)

  • Girijesh Kumar Tiwari

    (Girijesh Kumar Tiwari is at India Invest Economic Foundation (IIEF), 2 Poorvi Marg, Vasant Vihar, New Delhi 110 057.)

Abstract

This article compares four regulatory regimes. First, commercial banks use ‘standard deposits’. Second, commercial banks use ‘standard deposits’ and may use the lender of last resort facility. Third, commercial banks use partial suspension of convertibility. Fourth, there are enabling laws. The first regime leads to inefficiency. The second and third regimes may result in efficient allocation. Under enabling laws, efficiency is attained even if the cost of the lender of last resort facility is positive, or the disutility of bank runs or that of trading activity is positive. Finally, the article makes some observations on banking in emerging economies.

Suggested Citation

  • Gurbachan Singh & Girijesh Kumar Tiwari, 2007. "Bank Runs, Lender of Last Resort, Suspension of Convertibility, and Enabling Laws," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 6(1), pages 123-144, January.
    • Handle: RePEc:sae:emffin:v:6:y:2007:i:1:p:123-144
    DOI: 10.1177/097265270700600104
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    JEL Classification: E58; JEL Classification: G21; Bank runs; lender of last resort; suspension of convertibility; enabling laws;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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