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Exogenous Shocks, Deposit Runs and Bank Soundness: A Macroeconomic Framework

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  • Mr. Mario I. Bléjer

Abstract

In a model where all banks are initially solvent, an exogenous shock affects confidence, causing a flight from deposits into domestic and foreign currency. Real interest rates increase unexpectedly, affecting firms and raising the share of the banks’ nonperforming assets. This increase causes genuine solvency problems and accelerates the bank run. Policy simulations show that compensatory monetary policy (increasing currency supply when deposits fall) mitigates the bank run but causes inflation and external imbalances. Combining compensatory monetary policy with tight fiscal policies also slows the bank run and mitigates insolvency, but at a lower macroeconomic cost. A devaluation is shown to have little positive impact.

Suggested Citation

  • Mr. Mario I. Bléjer, 1997. "Exogenous Shocks, Deposit Runs and Bank Soundness: A Macroeconomic Framework," IMF Working Papers 1997/091, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1997/091
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    Cited by:

    1. Markus Arpa & Irene Giulini & Andreas Ittner & Franz Pauer, 2001. "The influence of macroeconomic developments on Austrian banks: implications for banking supervision," BIS Papers chapters, in: Bank for International Settlements (ed.), Marrying the macro- and micro-prudential dimensions of financial stability, volume 1, pages 91-116, Bank for International Settlements.
    2. Loser, Claudio M. & Kiguel, Miguel A. & Mermelstein, David, 2010. "A Macroprudential Framework for the Early Detection of Banking Problems in Emerging Economies," Working Papers on Regional Economic Integration 44, Asian Development Bank.

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