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Working Paper
Gates, Fees, and Preemptive Runs
We build a model of a financial intermediary, in the tradition of Diamond and Dybvig (1983), and show that allowing the intermediary to impose redemption fees or gates in a crisis--a form of suspension of convertibility--can lead to preemptive runs. In our model, a fraction of investors (depositors) can become informed about a shock to the return of the intermediary's assets. Later, the informed investors learn the realization of the shock and can choose their redemption behavior based on this information. We prove two results: First, there are situations in which informed investors would ...
Report
Gates, fees, and preemptive runs
We build a model of a financial intermediary, in the tradition of Diamond and Dybvig (1983), and show that allowing the intermediary to impose redemption fees or gates in a crisis—a form of suspension of convertibility—can lead to preemptive runs. In our model, a fraction of investors (depositors) can become informed in advance about a shock to the return on the intermediary’s assets. Later, the informed investors learn the realization of the shock and choose their redemption behavior based on this information. We prove two results: First, there are situations in which informed ...
Journal Article
Debit Card Interchange Fees Charged to Small Merchants After Regulation II
During the 2000s, both debit card transactions and interchange fees charged to merchants increased sharply in the United States, in part due to routing limitations and exclusivity agreements between card networks and issuers. To address growing fees and limited routing options, the Board of Governors of the Federal Reserve System implemented Regulation II in 2011. Regulation II capped debit card interchange fees received by large issuers (but not smaller “exempt” issuers), prohibited network exclusivity arrangements, and prohibited limitations on merchants’ routing choices.In this ...