A Model of a Systemic Bank Run

46 Pages Posted: 8 Jan 2010 Last revised: 14 Jan 2010

See all articles by Harald Uhlig

Harald Uhlig

University of Chicago - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: September 24, 2009

Abstract

This paper provides a model of the view that the 2008 financial crisis is reminiscent of a bank run, focusing on six stylized key features. In particular, core financial institutions have invested their funds in asset-backed securities rather than committed to long-term projects: In distress, these can potentially be sold to a large pool of outside investors at steep discounts. I consider two different motives for outside investors and their interaction with banks trading asset-backed securities: Uncertainty aversion versus adverse selection. I shall argue that the version with uncertainty averse investors is more consistent with the stylized facts than the adverse selection perspective: In the former, the crisis deepens, the larger the market share of distressed core banks, while a run becomes less likely instead as a result in the adverse selection version. Therefore, the outright purchase of troubled assets by the government at prices above current market prices may both alleviate the financial crises as well as provide tax payers with returns above those for safe securities.

Keywords: systemic bank run, bank run, systemic risk, financial crisis, firesale pricing, adverse selection, uncertainty aversion

JEL Classification: G21, G12, G14, G01

Suggested Citation

Uhlig, Harald, A Model of a Systemic Bank Run (September 24, 2009). MFI Working Paper No. 2009-06, Available at SSRN: https://ssrn.com/abstract=1533006 or http://dx.doi.org/10.2139/ssrn.1533006

Harald Uhlig (Contact Author)

University of Chicago - Department of Economics ( email )

1101 East 58th Street
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
262
Abstract Views
2,052
Rank
171,612
PlumX Metrics