BoE paper models bank runs in general equilibrium
Daisuke Ikeda finds regulations must be comprehensive to prevent risk shifting
Research published by the Bank of England sets out a model of endogenous bank runs, looking to capture the post-Basel III financial landscape in a general equilibrium setting.
The paper, by Daisuke Ikeda, an economist on secondment to the BoE from the Bank of Japan, says three elements are “essential” for modelling how the system responds to new regulations.
First, there needs to be a systemic event that triggers a crisis; second, the financial system must have some degree of resilience to
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