Saturday, June 21, 2014

Gates, Fees, and Preemptive Runs

Staff Writer, R. Patrick Chapman
Federal Reserve / Bank Runs

What happens when the Federal Reserve Board asks What If? Then a paper about what can and cannot create a preemptive bank run:

We build a model of a nancial intermediary, in the tradition
of Diamond and Dybvig (1983), and show that allowing the in-
termediary to impose redemption fees or gates in a crisis|a form
of suspension of convertibility|can lead to preemptive runs. In
our model, a fraction of investors (depositors) can become in-
formed about a shock to the return of the intermediary's assets.
Later, the informed investors learn the realization of the shock
and can choose their redemption behavior based on this informa-
tion. We prove two results: First, there are situations in which
informed investors would wait until the uncertainty is resolved
before redeeming if redemption fees or gates cannot be imposed,
but those same investors would redeem preemptively, if fees or
gates are possible. Second, we show that for the intermediary,
which maximizes expected utility of only its own investors, im-
posing gates or fees can be ex post optimal. These results have
important policy implications for intermediaries that are vulnera-
ble to runs, such as money market funds, because the preemptive
runs that can be caused by the possibility of gates or fees may
have damaging negative externalities.
What is the Federal Reserve Board really afraid of?

Without Global Currency Reset, the Federal Reserve Notes are going to collapse and take the United States with it. 

Or, we could transition into the United States Treasury Dollar with gold-backing thanks to John F. Kennedy and the Global Debt Facility.

Our stories include: 

The Fed is Dead: Global Currency Reset Begins as Governor Reneges on Duty to Arizonans
If You Want Answers: Follow the Yellow Brick Road

As has been said before:
The real transition is coming with US citizens' demand for release of the uncut US Treasury Dollars that John F. Kennedy printed to replace Federal Reserve Notes together with the 170,500 metric tons of gold to underpin the dollar allocated by Wolfgang Struck, the authorized signatory on the Global Collateral Account. The Jesuits assassinated JFK to prevent implementation of the Green Hilton Agreement, http://nexusilluminati.blogspo...
When will the Central Banks learn, the gig is up? Stop trying to collapse the United States into the North American Union. We have another way out of your created mess.

Source: Federal Reserve Board