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Optimal financial crises: A note on Allen and Gale

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Date
2006
Dewey
Economie financière
Sujet
Optimal banking panic; Bank failure; Deposit insurance; Panic of 1857
JEL code
G21
Journal issue
The Geneva Risk and Insurance Review
Volume
31
Publication date
2006
Article pages
61-66
Publisher
Springer
DOI
http://dx.doi.org/10.1007/s10713-006-9468-8
URI
https://basepub.dauphine.fr/handle/123456789/13657
Collections
  • LEDa : Publications
Metadata
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Author
Marini, François
Type
Article accepté pour publication ou publié
Abstract (EN)
This note provides an example of an optimal banking panic. We construct a model in which a banking panic is triggered by the banker, not the depositors. When the banker receives a pessimistic information on the return on the bank's assets, he liquidates them prematurely in order to protect his capital. In the face of this liquidation, all depositors withdraw their funds prematurely. The premature liquidation of the bank's assets strengthens the bank's balance sheet. As a result, the banking panic does not cause bank failure and the government should not try to prevent the panic. Such a panic occured in 1857 in the United States.

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