Contagious bank failures in a free banking system

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Contagious bank failures in a free banking system

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Title: Contagious bank failures in a free banking system
Author: Aghion, Philippe; Bolton, Patrick; Dewatripont, Mathias

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Citation: Aghion, Philippe, Patrick Bolton, and Mathias Dewatripont. 2000. “Contagious Bank Failures in a Free Banking System.” European Economic Review 44 (4-6) (May): 713–718.
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Abstract: This paper develops a model of an unregulated banking system based around a private clearing house arrangement. Whilst such a system may dominate one with a public safety net in reducing moral hazard in lending and therefore the scope for individual bank insolvency, it also increases the likelihood of contagious bank failures following a systemic shock or an aggregate liquidity shortage.
Published Version: doi:10.1016/S0014-2921(00)00058-1
Terms of Use: This article is made available under the terms and conditions applicable to Other Posted Material, as set forth at
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