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Bank Runs, Lender of Last Resort, Suspension of Convertibility, and Enabling Laws

Gurbachan Singh is at CITD, SIS, Jawaharlal Nehru University, New Delhi, Room No 107.

Girijesh Kumar Tiwari

Girijesh Kumar Tiwari is at India Invest Economic Foundation (IIEF), 2 Poorvi Marg, Vasant Vihar, New Delhi 110 057.

This article compares four regulatory regimes. First, commercial banks use ‘standard deposits’. Second, commercial banks use ‘standard deposits’ and may use the lender of last resort facility. Third, commercial banks use partial suspension of convertibility. Fourth, there are enabling laws. The first regime leads to inefficiency. The second and third regimes may result in efficient allocation. Under enabling laws, efficiency is attained even if the cost of the lender of last resort facility is positive, or the disutility of bank runs or that of trading activity is positive. Finally, the article makes some observations on banking in emerging economies.

Key Words: JEL Classification: E58 • JEL Classification: G21 • Bank runs • lender of last resort • suspension of convertibility • enabling laws

Journal of Emerging Market Finance, Vol. 6, No. 1, 123-144 (2007)
DOI: 10.1177/097265270700600104


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