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A Model for Financial Intermediation and Public Intervention

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  • SAMARTIN, Margarita

    (Center for Operations Research and Econometrics (CORE), Université catholique de Louvain (UCL), Louvain la Neuve, Belgium)

Abstract

Based on Chari and Jagannathan (1988), this paper models information-induced and “pure-panic" runs in an environment of risk-averse agents. In this framework, deposits are needed to provide insurance against investors' unexpected demand for liquidity and therefore, a role for a financial intermediary is justified. Conditions to assure bank-runs as an equilibrium phenomenon are derived and a welfare analysis of two devices that have traditionally been used by banks in order to prevent runs (namely, suspension of convertibility versus deposit insurance), is presented.

Suggested Citation

  • SAMARTIN, Margarita, 1996. "A Model for Financial Intermediation and Public Intervention," LIDAM Discussion Papers CORE 1996043, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:1996043
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    File URL: https://sites.uclouvain.be/core/publications/coredp/coredp1996.html
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