Wholesale Banking and Bank Runs in Macroeconomic Modeling of Financial Crises

M. Gertler, N. Kiyotaki, A. Prestipino

Research output: Chapter in Book/Report/Conference proceedingChapter

20 Scopus citations

Abstract

There has been considerable progress in developing macroeconomic models of banking crises. However, most of this literature focuses on the retail sector where banks obtain deposits from households. In fact, the recent financial crisis that triggered the Great Recession featured a disruption of wholesale funding markets, where banks lend to one another. Accordingly, to understand the financial crisis as well as to draw policy implications, it is essential to capture the role of wholesale banking. The objective of this chapter is to characterize a model that can be seen as a natural extension of the existing literature, but in which the analysis is focused on wholesale funding markets. The model accounts for both the buildup and collapse of wholesale banking and also sketches out the transmission of the crises to the real sector. We also draw out the implications of possible instability in the wholesale banking sector for lender-of-last resort policy as well as for macroprudential policy.

Original languageEnglish (US)
Title of host publicationHandbook of Macroeconomics, 2016
EditorsJohn B. Taylor, Harald Uhlig
PublisherElsevier B.V.
Pages1345-1425
Number of pages81
ISBN (Print)9780444594877
DOIs
StatePublished - Jan 1 2016

Publication series

NameHandbook of Macroeconomics
Volume2
ISSN (Print)1574-0048

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics
  • Economics, Econometrics and Finance (miscellaneous)

Keywords

  • Financial crises
  • Interbank markets
  • Rollover risk
  • Wholesale banking

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    Gertler, M., Kiyotaki, N., & Prestipino, A. (2016). Wholesale Banking and Bank Runs in Macroeconomic Modeling of Financial Crises. In J. B. Taylor, & H. Uhlig (Eds.), Handbook of Macroeconomics, 2016 (pp. 1345-1425). (Handbook of Macroeconomics; Vol. 2). Elsevier B.V.. https://doi.org/10.1016/bs.hesmac.2016.03.009