Do time deposits prevent bank runs?

In this paper the Diamond and Dybvig (J. Politic. Econ. 91 (1983) 401) model is extended by small consumption shocks; that is, an agent may encounter either a small shock or a big (full) shock. We show that a bank can issue liquid demand deposits and still avoid panics, if it also issues time deposits, which have a low liquidation value. Each agent splits his endowment between the two deposit types. If an agent later encounters a small, common consumption shock he withdraws demand deposits, whereas a big, rare shock requires that time deposits are also liquidated. Agents who withdraw only demand deposits benefit fro