Asset-Side Bank Runs and Liquidity Rationing: A Vicious Cycle

This paper, previously circulated as “Managing Bank Run Risk: The Perils of Discretion,” has benefited greatly from the feedback from the editor, associate editor, and two anonymous referees. The author is grateful for their valuable insights and suggestions. The author thanks Markus Brunnermeier, Wei Xiong, and Stephen Morris for unwavering support and guidance; Mark Aguiar, Olivier Darmouni, Douglas Diamond, Philip Dybvig, Maryam Farboodi, Hui Chen, Hans Degryse, Ji Huang, Kai Li, Yunan Li, Xuewen Liu, Jason Ravit, Michael Sockin, David Thesmar, Chong Wang, Hao Wang, Tak-yuen Wong, Motohiro Yogo, and Yao Zeng for invaluable comments and discussions; and the participants of the AFA, EFA, the First Annual Hong Kong-Shenzhen Summer Finance Conference, and seminars at Hong Kong University, Hong Kong University of Science and Technology, City University of Hong Kong, Lehigh University, National University of Singapore, Nanyang Technological University, Tsinghua University, Shanghai University of Finance and Economics, Wuhan University, and Fudan University for enriching the paper with their perspectives. Any remaining errors are solely my responsibility.