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 language | English |
|---|---|
| Pages (from-to) | 713-718 |
| Number of pages | 6 |
| Journal | European Economic Review |
| Volume | 44 |
| Issue number | 4-6 |
| Publication status | Published - 2000 |