Maximilian Günnewig - Uni Bonn

Abstract

Banks are intermediaries that issue deposits to finance loans, which exposes them to runs. Diamond and Rajan (2000, 2001) argue that this financial fragility is precisely why banks emerge as a solution to the hold-up problem identified by Hart and Moore (1994). We revisit this framework and characterize the optimal financial intermediation arrangement, which maintains the desirable properties of deposits while avoiding runs. Thus, in contrast to Diamond and Rajan, we find that fragility is not essential for but rather detrimental to the efficient flow of credit in the economy. Our arrangement accommodates asset risk while remaining safer than deposits and consistent with creditor monitoring incentives. It also has a natural implementation as an open-end fund and is consistent with empirical findings. Finally, we identify government guarantees as a rationale for deposit financing.

Additional information:

• Speaker: Maximilian Günnewig
• Time: Wednesday, 05.11.2025, 14:45 - 16:00
• Location: Faculty Lounge, Room 0.036
• Further links:
  • Speaker's webpage
• Organizer: Finance Group
• Contact:
  • Almut Lunkenheimer
  • +49 228 73-9228
  • ifs@uni-bonn.de