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On the dynamics and severity of bank runs: An experimental study

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  • Schotter, Andrew
  • Yorulmazer, Tanju

Abstract

This paper presents an experimental investigation of the factors that affect the dynamics and severity of bank runs. Our experiments demonstrate that the more information laboratory economic agents can expect to learn about the crisis as it develops, the more willing they are to restrain themselves from withdrawing their funds once a crisis occurs. Furthermore, our results indicate that the presence of insiders, who know the quality of the bank, significantly affects the dynamics of bank runs and helps mitigate their severity. We also show that deposit insurance, even of a limited type, can help diminish the severity of bank runs.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Financial Intermediation.

Volume (Year): 18 (2009)
Issue (Month): 2 (April)
Pages: 217-241

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Handle: RePEc:eee:jfinin:v:18:y:2009:i:2:p:217-241

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Web page: http://www.elsevier.com/locate/inca/622875

Related research

Keywords: Bank runs Banking crises Informed depositors Deposit insurance Experiments;

References

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Citations

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Cited by:
  1. Hubert Janos Kiss & Ismael Rodriguez-Lara & Alfonso Rosa-Garcia, 2013. "Do Social Networks Prevent or Promote Bank Runs?," IEHAS Discussion Papers 1344, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  2. David VanHoose, 2011. "Systemic Risks and Macroprudential Bank Regulation: A Critical Appraisal," NFI Policy Briefs 2011-PB-04, Indiana State University, Scott College of Business, Networks Financial Institute.
  3. Garratt, Rod & Keister, Todd, 2009. "Bank runs as coordination failures: An experimental study," Journal of Economic Behavior & Organization, Elsevier, vol. 71(2), pages 300-317, August.
  4. Alfonso Rosa García & Hubert Janos Kiss & Ismael Rodríguez Lara, 2009. "Do social networks prevent bank runs?," Working Papers. Serie AD, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) 2009-25, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  5. Vives, Xavier, 2011. "Strategic Complementarity, Fragility, and Regulation," CEPR Discussion Papers 8444, C.E.P.R. Discussion Papers.
  6. Arifovic, Jasmina & Hua Jiang, Janet & Xu, Yiping, 2013. "Experimental evidence of bank runs as pure coordination failures," Journal of Economic Dynamics and Control, Elsevier, vol. 37(12), pages 2446-2465.
  7. Trautmann, Stefan T. & Vlahu, Razvan, 2013. "Strategic loan defaults and coordination: An experimental analysis," Journal of Banking & Finance, Elsevier, vol. 37(3), pages 747-760.
  8. Markus Kinateder & Hubert Janos Kiss, 2013. "Sequential decisions in the Diamond-Dybvig banking model," IEHAS Discussion Papers 1345, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  9. Martin Brown & Stefan Trautmann & Razvan Vlahu, 2012. "Contagious Bank Runs: Experimental Evidence," DNB Working Papers, Netherlands Central Bank, Research Department 363, Netherlands Central Bank, Research Department.
  10. Michiel Bijlsma & Karen van der Wiel, 2012. "What Awareness? Consumer Perception of Bank Risk and Deposit Insurance," CPB Discussion Paper 205, CPB Netherlands Bureau for Economic Policy Analysis.
  11. Kiss, Hubert Janos & Rodriguez-Lara, Ismael & Rosa-García, Alfonso, 2014. "Do Women Panic More Than Men? An Experimental Study on Financial Decision," MPRA Paper 52912, University Library of Munich, Germany.
  12. Olga Shurchkov, 2013. "Coordination and learning in dynamic global games: experimental evidence," Experimental Economics, Springer, vol. 16(3), pages 313-334, September.
  13. Ciril Bosch-Rosa, 2014. "That's how we roll: an experiment on rollover risk," SFB 649 Discussion Papers SFB649DP2014-048, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  14. Jasmina Arifovic & Janet Hua Jiang, 2014. "Do Sunspots Matter? Evidence from an Experimental Study of Bank Runs," Working Papers 14-12, Bank of Canada.

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