Assume that a bank operates with the Diamond and Dybvig framework. As a result of a bank run, the bank has to liquidate its investment prematurely at a price of (1 – w) of the value of the invested asset (w: the wastage or loss rate). If the bank capital ratio to the value of the invested asset, k, is 9.8% and the wastage rate, w, is 17.1%, what percentage of the deposits will be repaid in case of a bank run without any backstop? 

Enter answer as a percentage number but without the “%” sign

(Example: Enter 10.50 for 10.50%; do not enter "10.50%" or "0.1050").

Answer rating: 100% (QA)

Given Capital Adequacy Ratio 98 Fiscal Backstop A backstop in fina... View the full answer