Banks, debt maturity and financial crises

We develop a model in which the maturity of external debt of banks, their l evel of international reserves, and the term structure of interest rates ar e jointly determined. Self-fulfilling runs may occur, and banks take this p ossibility into account when choosing the structure of their assets and lia bilities. If the probability of a run is sufficiently small, banks will del iberately choose an illiquid asset-liability position and expose themselves to a run. In that case, short term debt will be cheaper than long term deb t, and the maturity structure of foreign debt will depend on attitudes towa rds risk. (C) 2000 Elsevier Science B.V. All rights reserved.