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Financial crises are endogenized through corporate and interbank market institutions. Single-bank financing leads to a pooling equilibrium in the interbank market. With private information about one’s own solvency, the best illiquid banks will not borrow but rather will liquidate some premature assets. The withdrawals of the best banks from the interbank market may lead more solvent but illiquid banks to withdraw from the market, until the interbank market collapses. However, multi-bank financing leads to a separating equilibrium in the interbank market. Thus, bank runs are limited to illiquid and insolvent banks, and idiosyncratic shocks never trigger a contagious bank run.

Banks and Banking --- Finance: General --- Financial Risk Management --- Labor --- Financial Markets and the Macroeconomy --- Central Banks and Their Policies --- Current Account Adjustment --- Short-term Capital Movements --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Bankruptcy --- Liquidation --- General Financial Markets: General (includes Measurement and Data) --- Financial Crises --- Portfolio Choice --- Investment Decisions --- Labor Demand --- Finance --- Banking --- Economic & financial crises & disasters --- Labour --- income economics --- Interbank markets --- Financial crises --- Bank solvency --- Liquidity --- Financial markets --- Financial sector policy and analysis --- Asset and liability management --- Self-employment --- Banks and banking --- International finance --- Economics --- Self-employed --- Korea, Republic of

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The fundamental importance of economic institutions for economic growth through their impact on technological change has been argued, reconfirmed by recent empirical studies, but not examined theoretically. This paper tries to fill that gap. In the model proposed, economic growth is affected by the efficiency and riskiness of research and development (R&D), which are endogenized through financial institutions. The theory and its results shed lights on the debate of convergence versus divergence; the “East Asia miracle” versus the East Asia financial crisis; and the rise and fall of centralized economies.

Banks and Banking --- Labor --- Industries: Financial Services --- Macroeconomics: Consumption, Saving, Production, Employment, and Investment: General (includes Measurement and Data) --- Financial Institutions and Services: Government Policy and Regulation --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Labor Demand --- Banking --- Labour --- income economics --- Finance --- Self-employment --- Project loans --- Banks and banking --- Self-employed --- Loans

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This paper develops a simple model of an international lender of last resort (ILOLR). The world economy consists of many open economies, each with a banking system and a central bank operating under a pegged exchange rate regime. The fragility of the banking system and the limited ability of a domestic central bank to provide international liquidity together can cause currency and banking crises. An international interbank market can help an economy with the needed international liquidity, but with potential costs of international financial contagion. An ILOLR can play a useful role in providing international liquidity and reducing international contagion.

Banks and Banking --- Finance: General --- Financial Risk Management --- Macroeconomics --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Central Banks and Their Policies --- International Monetary Arrangements and Institutions --- International Policy Coordination and Transmission --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Financial Institutions and Services: Government Policy and Regulation --- General Financial Markets: General (includes Measurement and Data) --- Financial Crises --- Portfolio Choice --- Investment Decisions --- Foreign Exchange --- Finance --- Economic & financial crises & disasters --- Banking --- Financial markets --- Financial crises --- Asset and liability management --- International finance --- Banks and banking --- Liquidity --- Economics --- Banks and banking, Central --- Currency crises --- United States

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