We propose a novel theory for the interaction of banks' liquidity management, financial
fragility, and regulation. Banks invest in illiquid productive assets and hold liquidity to repay
depositors with idiosyncratic needs to withdraw funds during an interim period. Moreover,
strategic complementarities in the depositors' withdrawal decisions make banks subject to self-
fulfilling runs, modeled as “global games”. Under different regulatory regimes, we study liquidity
holdings and the pecking order in which banks use assets to repay depositors during a run. In
an unregulated economy, in which banks choose the pecking order as a run unfolds, they first
deploy liquidity and then liquidate productive assets, and hold excess liquidity in anticipation of
runs. In an economy with recovery and resolution planning, banks commit to the asset pecking
order that maximizes expected welfare, and a resolution authority resolves banks if a run occurs
by suspending deposit convertibility and creating a good bank at a cost. Under this regime,
banks commit to liquidating productive assets first and then deploying liquidity, and hold no
excess liquidity in anticipation of runs. The difference between the two regimes only depends on
the coexistence of recovery and resolution planning.