@kingofthecoastt Answer: no. https://t.co/lSE98vxLwX
@econobaker @MorganRicks1 And with the right sort of redemption contracts, they can spare sound banks while doing their disciplinary duty with unsound ones. We rely instead on regulators: and it ain't workin'! https://t.co/lSE98vxLwX
RT @GeorgeSelgin: @dandolfa @biancoresearch Right. Under the right conditions, voluntary suspension contracts could actually prevent runs a…
RT @GeorgeSelgin: @dandolfa @biancoresearch Right. Under the right conditions, voluntary suspension contracts could actually prevent runs a…
@dandolfa @biancoresearch Right. Under the right conditions, voluntary suspension contracts could actually prevent runs and serve as a good substitute for deposit insurance. https://t.co/lSE98vxLwX
@LynAldenContact @john_at_swan @evoskuil Of course if many people redeem their bank IOUs at once that is a different story. But there are contractual ways truly free banks could handle even that contingency. https://t.co/lSE98vxLwX
“deposit contracts allowing for suspension of payments in the event of a panic” 💀
RT @GeorgeSelgin: Here's a paper in which I modify the DD model to allow for money--both basic and bank-issued. I then show how, in the mod…
RT @GeorgeSelgin: Here's a paper in which I modify the DD model to allow for money--both basic and bank-issued. I then show how, in the mod…
Here's a paper in which I modify the DD model to allow for money--both basic and bank-issued. I then show how, in the modified model, deposit contracts allowing for suspension of payments in the event of a panic can suffice to achieve an optimal outcome. h
In particular, I showed how, in a DD model modified to allow for both outside and "bank" money, suspension contracts can achieve run-proof maturity transformation: https://t.co/lSE98vyjmv
@l_constable @CliffordSosin Although the Scottish banks never had to use option clauses to prevent customer runs (they were there to prevent "note raids" by rival banks, the clauses could certainly serve that end. Here's an article on that: https://t.co/lS
@profholden @ATabarrok @dandolfa @anup_malani I have a paper in which I modify the D-D model to allow for "money" that isn't also the consumption good, and "merchants" apart from banks, and show how in it suspension contracts can in lead to optimal results
As I've noted in my own work on this topic, suspended claims need not lose their liquidity: they can (and historically have) continued to be transacted with, often at par. https://t.co/lSE98vPmov
For my part, I've shown that, despite a claim made by Diamond and Dybvig in their famous paper on runs, suspension contracts can be perfectly consistent with consumers' welfare: https://t.co/lSE98vxLwX
@Frances_Coppola @CN_ @EdKwangl @davidgerard @jemimajoanna @ahcastor @Tr0llyTr0llFace @Bitfinexed For that matter, banks should be allowed to make use of "option clauses," granting them permission to delay redemption of demandable debts in emergencies. htt
@dandolfa @lawrencehwhite1 @MorganRicks1 Though Canadian banks never found doing so necessary, technically the right to issue notes would have made it easier for them to address panics, w/out hampering payments, by suspending convertibility of their IOUs i
(I have a paper showing why the case for regulation vanishes if you tweak D-D to make it more realistic and allow for suspension of payments: https://t.co/lSE98vxLwX)
Second, bank deposits needn't even be subject to runs that are harmful to the run-upon bank or its customers. "bad" runs can be prevented by "optional clauses" or other voluntary arrangements allowing banks to suspend redemption. https://t.co/DqPm7y76cd.
@LouisWoodhill @lawrencehwhite1 @sam_a_bell @NGDPAdvisers @farmerrf @MaMoMVPY @dandolfa @MacRoweNick @norbertjmichel @jp_koning @Pat_Horan92 @WilliamJLuther @fernandoulrich @PeterBoettke @RebelEconProf This ignores both the rarity of such generalized base-
@LouisWoodhill @instahayek Lou, with all due respect, that's not true. You are using a case where suspension was illegal to prove that it wouldn't work were it legal! Like I said, there's a large lit. on this. Here's a link to something I write some years
For those interested, here are two relevant article, the first by Gary Gorton, https://t.co/vUs83voCsc; the second by yours truly, https://t.co/lSE98vxLwX
@jasoncrawford For the more general argument, see, besides the Gorton article to which you've been referred, this one making the point in a Diamond-Dybvig framework: https://t.co/lSE98vxLwX Finally, on the illegality of suspension contracts in the U.S. see
@dandolfa @deepwatrcreatur @farmerrf @1954swilliamson also related to their modeling strategy. In D-D suspension prevents type 1s from consuming. That's owing to their model's non-monetary nature. That's why I wrote this: https://t.co/lSE98vxLwX
@MorganRicks1 @dandolfa Besides David's pt., for starters: (1) No capital; (2) undiversified portfolio; (3) a single bank (so no diversity across banks); and (4) "bank" also the only source of real goods, making suspension of payment artificially costly. O
RT @GeorgeSelgin: @TallDave7 @FriedrichHayek Gold panics were not all that common. In any case there are ways--including temporary suspensi…
@TallDave7 @FriedrichHayek Gold panics were not all that common. In any case there are ways--including temporary suspensions--of dealing with panics under a gold standard regime. See https://t.co/lSE98vxLwX Finally, fiat money LOLRs pose problems of their
@dandolfa @Frances_Coppola @MacRoweNick @EconomicsOne @norbertjmichel @DavidBeckworth @MoneyIllusion @MaMoMVPY @lawrencehwhite1 They consider suspension clauses only to dismiss them as sub-optimal, which is true also thanks to their model's misleading assu
@BobMurphyEcon @ankushnarula @2VNews @vincentliberta2 @lawrencehwhite1 It's true! And it might, under certain conditions, be a good contractual solution to the problem of panic-based runs: https://t.co/DqPm7y76cd
See also: https://t.co/sqIfCLONPB