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This paper reports an experiment conducted to evaluate the effects of alterations in the terms of repayments to depositors following a liquidity suspension as well as the effect of alterations in the publicity of information about withdrawal behavior on the fragility of distressed banks. Results indicate that a “tough” renegotiation stance, e.g. of protecting depositors who maintain their money in the bank, can quite effectively promote stability. Information provided to depositors regarding past withdrawal behavior weakens the effectiveness of a tough renegotiation policy, but reduces fragility somewhat for a more lenient rescheduling condition.
From:
Douglas D. Davisa
Robert J. Reilly
Virginia Commonwealth University
This paper reports an experiment conducted to evaluate the effects of alterations in the terms of repayments to depositors following a liquidity suspension as well as the effect of alterations in the publicity of information about withdrawal behavior on the fragility of distressed banks. Results indicate that a “tough” renegotiation stance, e.g. of protecting depositors who maintain their money in the bank, can quite effectively promote stability. Information provided to depositors regarding past withdrawal behavior weakens the effectiveness of a tough renegotiation policy, but reduces fragility somewhat for a more lenient rescheduling condition.
From:
Douglas D. Davisa
Robert J. Reilly
Virginia Commonwealth University