Exogenous Shocks, Deposit Runs and Bank Soundness: A Macroeconomic Framework
Posted: 31 Jan 1998
In a model where all banks are initially solvent, an exogenous shock affects confidence, causing a flight from deposits into domestic and foreign currency. Real interest rates increase unexpectedly affecting firms and raising the share of the banks' nonperforming assets. This increase causes genuine solvency problems and accelerates the bank run.
JEL Classification: D58, E42, G21
Suggested Citation: Suggested Citation