Creator: Wallace, Neil. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.) Number: 370 Abstract:
The Diamond-Dybvig model of banking (Journal of Political Economy, 1983) is amended by introducing communication barriers—these being implicit in their model and in most explanations of why people hold so-called liquid assets. These barriers imply the sequential-service constraint that Diamond and Dybvig imposed on private intermediation and have other implications: infeasibility of the policy that Diamond and Dybvig identify with deposit insurance and desirability of dependence of the realized return on deposits on the random order of withdrawals.
Keyword: Dybvig, Deposit insurance, Communication barrier, Liquid assets, Banks, Sequential service constraint, and Diamond Subject (JEL): G21 - Financial institutions and services - Banks ; Other depository institutions ; Micro finance institutions ; Mortgages