Bank-Runs, Contagion and Cedit Easing
We present a macroeconomic model of financial crises in which banks are subject to self-fulfilling runs. An individual bank is vulnerable to a run when a loss of investors’ confidence triggers deposit withdrawals and leads the bank to default on its obligations. We characterize how this vulnerability depends on its own leverage as well as macroeconomic fundamentals. We show that bank-runs can be contagious and spread out across the entire financial system. A key policy insight is that the effectiveness of credit easing depends critically on whether a financial crisis is driven by fundamentals or loss of confidence.
Date:
10 November 2020, 13:00 (Tuesday, 5th week, Michaelmas 2020)
Venue:
Held on Zoom
Speaker:
Javier Bianchi (FED Minneapolis)
Organising department:
Department of Economics
Part of:
Seminar in Macroeconomics
Booking required?:
Not required
Audience:
Members of the University only
Editor:
Melis Clark
