ABSTRACT
In the previous three chapters, we have seen that if there is a bank run, there is a loss of confidence in some or all banks, and at the same time there is an increased demand for other assets, such as (1) deposits in a more-reputed commercial bank (in Chapter 5), (2) currency (in Chapter 6), or (3) gold, given the gold standard monetary regime (in Chapter 7). A market for a line of credit (LOC) to take care of the desired shift may or may not exist, as we have seen in those three chapters, depending on the costs and benefits. However, the desired asset is assumed to be available in elastic supply in each of the three cases. But this may not always be true. In this chapter, we will reconsider each of the three cases, and examine the effect of relaxing the crucial assumption of elastic supply of the desired asset.
