TY  - JOUR
AU  - Rotemberg,Julio J.
TI  - A Behavioral Model of Demandable Deposits and its Implications for Financial Regulation
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 16620
PY  - 2010
Y2  - December 2010
UR  - http://www.nber.org/papers/w16620
L1  - http://www.nber.org/papers/w16620.pdf
N1  - Author contact info:
Julio J. Rotemberg
Graduate School of Business
Harvard University, Morgan Hall
Soldiers Field
Boston, MA  02163
Tel: 617/495-1015
Fax: 617/496-5994
E-Mail: jrotemberg@hbs.edu
AB  - A model is developed which rationalizes contracts that give depositors the right to obtain funds on demand even when depositors intend to use these funds for consumption in the future. This is explained by depositor overoptimism regarding their own ability to collect funds in a run. Capitalized institutions serving depositors with such beliefs emerge in equilibrium even if depositors and bank owners have the same preferences and the same investment opportunities. Various government regulations of these institutions, including minimum capital levels, requirements concerning the assets they may hold, deposit insurance and compulsory clawbacks in bankruptcy can raise the average ex post welfare of depositors.
ER  -