NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Money Runs

Jason R. Donaldson, Giorgia Piacentino

NBER Working Paper No. 26298
Issued in September 2019
NBER Program(s):Corporate Finance Program, Monetary Economics Program

We develop a model in which, as in practice, bank debt is both a financial security used to raise funds and a kind of money used to facilitate trade. This dual role of bank debt provides a new rationale for why banks do what they do. In the model, banks endogenously perform the essential functions of real-world banks: they transform liquidity, transform maturity, pool assets, and have dispersed depositors. Moreover, they make their debt redeemable on demand. Thus, they are endogenously fragile. We show novel effects of narrow banking, suspension of convertibility, and some other policies.

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Document Object Identifier (DOI): 10.3386/w26298

 
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