Home About Latest Browse RSS Advanced Search

Federal Reserve Bank of New York
Staff Reports
Run equilibria in a model of financial intermediation
Huberto M. Ennis
Todd Keister
Abstract

We study the Green and Lin (2003) model of financial intermediation with two new features: traders may face a cost of contacting the intermediary, and consumption needs may be correlated across traders. We show that each feature is capable of generating an equilibrium in which some (but not all) traders “run” on the intermediary by withdrawing their funds at the first opportunity regardless of their true consumption needs. Our results also provide some insight into elements of the economic environment that are necessary for a run equilibrium to exist in general models of financial intermediation. In particular, our findings highlight the importance of information frictions that cause the intermediary and traders to have different beliefs, in equilibrium, about the consumption needs of traders who have yet to contact the intermediary.


Download Full text
Download Full text
Cite this item
Huberto M. Ennis & Todd Keister, Run equilibria in a model of financial intermediation, Federal Reserve Bank of New York, Staff Reports 312, 2008.
More from this series
JEL Classification:
Subject headings:
Keywords: Intermediation (Finance) ; Equilibrium (Economics) ; Banks and banking
For corrections, contact Amy Farber ()
Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

Privacy Legal