Contagious bank failures in a free banking system

Authors
Aghion, P Bolton, P Dewatripont, M
Citation
P. Aghion et al., Contagious bank failures in a free banking system, EUR ECON R, 44(4-6), 2000, pp. 713-718
Citations number
5
Categorie Soggetti
Economics
Journal title
EUROPEAN ECONOMIC REVIEW
ISSN journal
00142921 → ACNP
Volume
44
Issue
4-6
Year of publication
2000
Pages
713 - 718
Database
ISI
SICI code
0014-2921(200005)44:4-6<713:CBFIAF>2.0.ZU;2-U
Abstract
This paper develops a model of an unregulated banking system based around a private clearing house arrangement. Whilst such a system may dominate one with a public safety net in reducing moral hazard in lending and therefore the scope for individual bank insolvency, it also increases the likelihood of contagious bank failures following a systemic shock or an aggregate liqu idity shortage. (C) 2000 Elsevier Science B.V. All rights reserved. JEL cla ssification: D00; G3.