Model of reserves, bank runs, and deposit insurance, a Public Deposited

Creator Series Issue number
  • 126
Date Created
  • 1980-04
  • A model is presented in which demand deposits backed by fractional currency reserves and public insurance can be beneficial. The model uses Samuelson's pure consumption-loans model. The case for demand deposits, reserves, and deposit insurance rests on costs of illiquidity and incomplete information. The effect of deposit insurance depends upon how, and at what cost, the government meets its insurer's obligation--something which is not specified in practice. It remains possible that demand deposits and deposit insurance are a distortion, and reserve requirements serve only to limit the size of this distortion.

Subject (JEL) Keyword Alternative title
  • Open market operations in a model of regulated, insured intermediaries / John Bryant, Neil Wallace.
Contributor Date Modified
  • 03/21/2018
  • Federal Reserve Bank of Minneapolis. Research Division.
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