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Report
Gates, fees, and preemptive runs
We build a model of a financial intermediary, in the tradition of Diamond and Dybvig (1983), and show that allowing the intermediary to impose redemption fees or gates in a crisis—a form of suspension of convertibility—can lead to preemptive runs. In our model, a fraction of investors (depositors) can become informed in advance about a shock to the return on the intermediary’s assets. Later, the informed investors learn the realization of the shock and choose their redemption behavior based on this information. We prove two results: First, there are situations in which informed ...
Working Paper
Gates, Fees, and Preemptive Runs
We build a model of a financial intermediary, in the tradition of Diamond and Dybvig (1983), and show that allowing the intermediary to impose redemption fees or gates in a crisis--a form of suspension of convertibility--can lead to preemptive runs. In our model, a fraction of investors (depositors) can become informed about a shock to the return of the intermediary's assets. Later, the informed investors learn the realization of the shock and can choose their redemption behavior based on this information. We prove two results: First, there are situations in which informed investors would ...