Contagious bank failures in a free banking system

P. Aghion, P. Bolton, M. Dewatripont

Research output: Contribution to journalArticleScientificpeer-review

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 liquidity shortage.
Original languageEnglish
Pages (from-to)713-718
Number of pages6
JournalEuropean Economic Review
Volume44
Issue number4-6
Publication statusPublished - 2000

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Clearinghouse
Shortage
Liquidity
Free banking
Public safety
Bank failure
Moral hazard
Lending
Banking system
Insolvency
Safety net

Cite this

Aghion, P., Bolton, P., & Dewatripont, M. (2000). Contagious bank failures in a free banking system. European Economic Review, 44(4-6), 713-718.
Aghion, P. ; Bolton, P. ; Dewatripont, M. / Contagious bank failures in a free banking system. In: European Economic Review. 2000 ; Vol. 44, No. 4-6. pp. 713-718.
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Aghion, P, Bolton, P & Dewatripont, M 2000, 'Contagious bank failures in a free banking system', European Economic Review, vol. 44, no. 4-6, pp. 713-718.

Contagious bank failures in a free banking system. / Aghion, P.; Bolton, P.; Dewatripont, M.

In: European Economic Review, Vol. 44, No. 4-6, 2000, p. 713-718.

Research output: Contribution to journalArticleScientificpeer-review

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AU - Bolton, P.

AU - Dewatripont, M.

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PY - 2000

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N2 - 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 liquidity shortage.

AB - 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 liquidity shortage.

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JF - European Economic Review

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Aghion P, Bolton P, Dewatripont M. Contagious bank failures in a free banking system. European Economic Review. 2000;44(4-6):713-718.