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λ1 D1* +(1- λ1 D1*)L<1,

.That is the premature liquidation of asset will give a lower value than its liabilities. The liabilities of the bank during the time 1 will be D1* >1. During this situation it will be optimal for all the late consumer to with draw early as the banks will fail before the time 2 because of early liquidation. This is a theoretical game were the depositors takes a decision depending on the behaviour of other depositors. If a depositor believes that the others will withdraw their money early then even he will withdraw his money early and if he thinks other depositors will withdraw their money late then even he will wait until the time 2. This game has tow Nash equilibrium. The depositor will make their withdrawal depending on the decision of others. Run here occurs because psychological reactions of the depositors.

2.3 NORTHERN ROCK CRISIS WITH THE MODEL

I would relate run on the Northern Rock bank with the model. Let us assume that the deposit insurance is absent, we know the business model of the bank it makes majority of its investment in lending mortgages, so the assets of the bank are illiquid. In this case we will not be able to differentiate the late and early consumers.

A large portion of depositors withdrew their deposits after the information leaked, that the bank was in need of emergency support. That is only after Bank of England agreed to provide emergency loan to Northern Rock on 13th September. Large portion of consumers went to withdraw their money on the 14th. The information on the bank was the initial push for the retail run. The depositors, who knew the bank is need of support, would have made their decision to withdraw early. So the initial cause of the bank run is here information based.

It is difficult for all the depositors to have knowledge on the performance on the bank. As the model shows the decision of the late consumer depends on the other depositors. The same can be captured with the run on Northern Rock. The depositors who make late and early withdrawal from the bank here can not be differentiated. The uninformed depositors about the bank performance made their decision on seeing the behaviour of all the other informed depositors. That is on observing the本论文由英语论文网提供整理，提供论文代写，英语论文代写，代写论文，代写英语论文，代写留学生论文，代写英文论文，留学生论文代写相关核心关键词搜索。