Kap. 3

arise primarily as a result from asymmetric information -> frictions increase -> financial markets are less capable to channel funds from savers to ivnestors

occurs when financial frictions increase to sharply

1. Banking crisis

2. Sovereign Debt Crisis

3. Currency Crisis

• depositors are serviced sequentially (first come first serve) -> withdrawal amount depends upon place in withdrawal queue

• bank is not allowed to suspend convertibility

Problem: each depositor is allowed to withdraw funds in t=1 & personal liquidity is personal information -> not observable for bank and therefore bank can’t enforce that only early consumer withdraw their funds

-> if investors think that too many depositors withdraw their funds in t=1 and bank wont be liquid anymore to pay back the promised return in t=2 -> late consumer will also withdraw their funds in t=1

arises when doubts emerge as to whether a country can continue to service its debts and interest payments in full and on time

sudden loss of confidence in currency -> leads to stong depreciation of currency & forces centralbank to abdandon a fixed exchange rate

occurs when clients with their money from a bank because they belive the bank my fail in the near future

1. financial regulation -> process of rulemaking & the legislation underlying supervisory framework

2. Supervision -> monitor the bevior of ind. fin. institutions and enforcing legislation-> micro- vs. macroprudential

3. Examination -> institutions book (balance sheets) is examined