Bank Runs, Deposit Insurance and Liquidity (Journal of Political Economy, Vol. 91, No. 3, June 1983)
by Douglas Diamond and Philip Dybvig
Diamond and Dybvig lay out their vision of the role of banks and the notion of liquidity, highlighting a key feature of banks: that at any given time, a bank doesn’t have enough money – shouldn’t have enough money, if it’s doing its job well – to repay all its depositors then and there.
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Economic Theory and the Financial Crisis: A Reading List
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