## Exogenous Shocks, Deposit Runs and Bank Soundness: A Macroeconomic Framework

_IMF Working Papers, July 1, 1997_

## Source details

**Canonical URL:** [Exogenous Shocks, Deposit Runs and Bank Soundness: A Macroeconomic Framework](https://www.imf.org/en/publications/wp/issues/2016/12/30/exogenous-shocks-deposit-runs-and-bank-soundness-a-macroeconomic-framework-2267)

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## Bibliographic details
- Authors: Mario I. Bléjer
- Published: July 1, 1997
- Series: IMF Working Papers

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### Summary of model and mechanisms
- All banks are initially solvent; an exogenous shock undermines confidence and triggers a flight from deposits into domestic and foreign currency.
- Real interest rates increase unexpectedly, adversely affecting firms and raising the share of banks’ nonperforming assets.
- The rise in nonperforming assets generates genuine solvency problems and accelerates bank runs.
- A devaluation is shown to have little positive impact on containing the bank run or insolvency.

### Policy simulations and findings
- Compensatory monetary policy (increasing currency supply when deposits fall):
  - Mitigates the bank run.
  - Causes inflation and external imbalances.
- Combining compensatory monetary policy with tight fiscal policies:
  - Slows the bank run.
  - Mitigates insolvency.
  - Achieves these outcomes at a lower macroeconomic cost than compensatory monetary policy alone.

### Subject areas and keywords
- Subjects: Bank deposits, Bank solvency, Banking, Commercial banks, Financial institutions, Financial sector policy and analysis, Financial services, Government debt management, Monetary expansion, Monetary policy, Public financial management (PFM), Real interest rates.
- Keywords: bank, bank assets, bank category, bank default, bank depositor, bank management, Bank solvency, Commercial banks, deposit run, Government debt management, liquidity contraction, Monetary expansion, price level, Real interest rates, WP.

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## Content in this bundle

- **Exogenous Shocks, Deposit Runs and Bank Soundness:  A Macroeconomic Framework - WP/97/91**
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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/30/exogenous-shocks-deposit-runs-and-bank-soundness-a-macroeconomic-framework-2267_