Abstract :
This paperprovidesamodeloftheviewthatthe2008financialcrisisisreminiscentofa
bankrun,focussingonsixstylizedkeyfeatures.Inparticular,corefinancialinstitutions
have investedtheirfundsinasset-backedsecuritiesratherthancommittedtolong-term
projects:indistress,thesecanpotentiallybesoldtoalargepoolofoutsideinvestorsat
steepdiscounts.Iconsidertwodifferentmotivesforoutsideinvestorsandtheir
interactionwithbankstradingasset-backedsecurities:uncertaintyaversionversus
adverseselection.Ishallarguethattheversionwithuncertaintyaverseinvestorsis
moreconsistentwiththestylizedfactsthantheadverseselectionperspective:inthe
former,thecrisisdeepens,thelargerthemarketshareofdistressedcorebanks,whilea
runbecomeslesslikelyinsteadasaresultintheadverseselectionversion.Therefore,
theoutrightpurchaseoftroubledassetsbythegovernmentatpricesabovecurrent
marketpricesmaybothalleviatethefinancialcrisesaswellasprovidetaxpayerswith
returnsabovethoseforsafesecurities.
