Abstract
A model is developed with a novel approach to analyzing banking panics in general equilibrium. Banks may fail, and bank insolvency potentially drives banking panics in which there is payment disruption, in the absence of sequential service constraints. Policy intervention, including deposit insurance and emergency open market operations, is considered. Central bank digital currency tends to encourage banking panics, in part because panics are less disruptive with central bank digital currency than with physical currency. It may be optimal to live with banking panics, as eliminating them may be too costly.
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