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There are two investors. One investor deposits $80 and the other investor deposits $120. The bank has invested $200 into a long-term project. If the
- There are two investors. One investor deposits $80 and the other investor deposits $120. The bank has invested $200 into a long-term project. If the bank is forced to liquidate the project before it matures, a total of $120 can be recovered. If the project matures, it earns a return of 10% so that the total payoff is $220 and each investor receives the share proportional to his deposit. The investors can make withdrawals from the bank at two dates: -Date 1: before the bank's project matures -Date 2: after the bank's project matures
What is the minimum amount of liquidity that the lender of last resort needs to provide the bank to ensure depositors do not run on the bank?
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