Money Runs

59 Pages Posted: 7 Oct 2019

Multiple version iconThere are 2 versions of this paper

Date Written: August 2019


We develop a model in which, as in practice, bank debt is both a financial security used to raise funds and a kind of money used to facilitate trade. This dual role of bank debt provides a new rationale for why banks do what they do. In the model, banks endogenously perform the essential functions of real-world banks: they transform liquidity, transform maturity, pool assets, and have dispersed depositors. Moreover, they make their debt redeemable on demand. Thus, they are endogenously fragile. We show novel effects of narrow banking, suspension of convertibility, and some other policies.

Keywords: Banking, demandable debt, financial fragility, Private money

JEL Classification: E40, G21, G32

Suggested Citation

Donaldson, Jason Roderick and Piacentino, Giorgia, Money Runs (August 2019). CEPR Discussion Paper No. DP13955, Available at SSRN:

Jason Roderick Donaldson (Contact Author)

Washington University in St. Louis ( email )

One Brookings Drive
Campus Box 1208
Saint Louis, MO MO 63130-4899
United States

Giorgia Piacentino

Columbia University ( email )

New York

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