The Failure Mechanics of Dealer Banks

摘要

A bank is conventionally viewed as an intermediary between depositors, who desire short-term liquidity, and borrowers, who seek project financing. Occasionally, perhaps from an unexpected surge in the cash withdrawals of depositors or from a shock to the ability of borrowers to repay their loans, depositors may become concerned over the bank's solvency. Depositors may then "run," accelerating or worsening the bank's failure. The standard policy tools for treating the social costs of bank failures include regulatory supervision and risk-based capital requirements to reduce the chance of a solvency threatening loss of capital; deposit insurance to reduce the incentives of individual depositors to trigger cash insolvency by racing each other to withdraw their deposits; and regulatory resolution mechanisms, which give authorities the power to efficiently restructure or liquidate a bank.