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Savings, Efficiency and Bank Runs

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  • Leonello, Agnese
  • Mendicino, Caterina
  • Panetti, Ettore
  • Porcellacchia, Davide

Abstract

Does the level of deposits affect bank fragility and efficiency? By augmenting a standard model of endogenous bank runs with a consumption-saving decision, we derive two key findings. First, depositors' incentives to run increase with the amount of savings held as bank deposits. Second, a saving externality emerges since individual depositors do not internalize the impact of their savings on the likelihood of a bank run. This leads to an economy featuring over-saving and inefficient bank liquidity provision, as well as excessive bank fragility. Finally, we characterize the optimal policy to implement the efficient allocation.

Suggested Citation

  • Leonello, Agnese & Mendicino, Caterina & Panetti, Ettore & Porcellacchia, Davide, 2024. "Savings, Efficiency and Bank Runs," CEPR Discussion Papers 19276, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:19276
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    More about this item

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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