This article compares four regulatory regimes. First, commercial banks use ‘standard deposits’. Second, commercial banks use ‘standard deposits’ and may use the lender of last resort facility. Third, commercial banks use partial suspension of convertibility. Fourth, there are enabling laws. The first regime leads to inefficiency. The second and third regimes may result in efficient allocation. Under enabling laws, efficiency is attained even if the cost of the lender of last resort facility is positive, or the disutility of bank runs or that of trading activity is positive. Finally, the article makes some observations on banking in emerging economies.
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