Contagious bank failures in a free banking system

P. Aghion, P. Bolton, M. Dewatripont

Research output: Contribution to journalArticleScientificpeer-review

42 Citations (Scopus)

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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