Abstract:
We derive conditions such that optimal liquidity provisions through a demand
deposit scheme can be sustainably implemented in a subgame perfect Nash equi-
librium under the assumption that renegade investors have free access to ex-post
asset markets. As our qualitative main nding we demonstrate that such sus-
tainability is more likely for poor than for rich scheme participants in terms
of future income. By establishing sustainability for low future income popula-
tions, our formal analysis therefore o¤ers an important quali cation of Jacklin s
(1987) in uential claim that an optimal demand deposit scheme is not sustainable
whenever there exists the possibility of an ex-post asset market.
