Wholesale Banking and Bank Runs in Macroeconomic Modeling of Financial Crises

By M. Gertler, Nobuhiro Kiyotaki, Andrea Prestipino. 2016

161 citations recorded by the source corpus.

There has been considerable progress in developing macroeconomic models of banking crises. However, most of this literature focuses on the retail sector where banks obtain deposits from households. In fact, the recent financial crisis that triggered the Great Recession featured a disruption of wholesale funding markets, where banks lend to one another. Accordingly, to understand the financial crisis as well as to draw policy implications, it is essential to capture the role of wholesale banking. The objective of this paper is to characterize a model that can be seen as a natural extension of the existing literature that provides a step toward accomplishing this objective. The model accounts for both the buildup and collapse of wholesale banking, and also sketches out the transmission of the crises to the real sector. We also draw out the implications of possible instaibility in the wholesale banking sector for lender-of-last resort policy as well as for macroprudential policy.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/d5537dd6364ee963e5bc514ffb0906ec6a667e8d

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Citations in the corpus

Incomplete Information in Macroeconomics: Accommodating Frictions in Coordination (2016, unknown): “41 Turning to the context of bank runs, Goldstein and Pauzner (2005) “globalize” Diamond and Dybvig (1983) and proceed to study the implications for the design of the optimal deposit contract.”
On DSGE Models (2018, unknown): “Bernanke, Ben S., Mark Gertler, and Simon Gilchrist, “The Financial Accelerator in a Quantitative Business Cycle Framework,” Handbook of macroeconomics, 1999, 1, 1341–1393.”
Financial Regulation in a Quantitative Model of the Modern Banking System (2017, unknown): “Several recent papers in this literature study the interaction of different types of banks that differ in the extent of regulation and bailout guarantees.6 Our paper is most closely related to Moreira and Savov (2014), Huang (2015), and Gertler, Kiyotaki, and Prestipino (2016).”
Optimal Time-Consistent Macroprudential Policy (2017, background): “27 In this regard, the recent studies by Gertler and Kiyotaki (2010), Bianchi and Bigio (2014), Boissay et al. (2016), and Gertler, Kiyotaki, and Prestipino (2016) provide useful insights.”