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Governance by depositors, bank runs and ambiguity aversion

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  • Guillemin, François

Abstract

We investigate the theoretical relationship between ambiguity aversion and the decision to withdraw early from a deposit contract. We first document and define the concepts to illustrate our results. Then we extend the theoretical framework of Gorton (1985) to implement a model of maxmin expected utility to match the ambiguity aversion hypothesis. We observe that the most ambiguous depositors are more likely to mistakenly withdraw their deposits, reducing bank stability and leading to inefficient bank runs. We also show higher ambiguity levels negatively impact bank equity levels.

Suggested Citation

  • Guillemin, François, 2020. "Governance by depositors, bank runs and ambiguity aversion," Research in International Business and Finance, Elsevier, vol. 54(C).
    • Handle: RePEc:eee:riibaf:v:54:y:2020:i:c:s0275531919304878
    DOI: 10.1016/j.ribaf.2020.101239
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    Cited by:

    1. Deng, Wei & Gao, Lei & Xing, Fei & Yang, Ming, 2023. "Economic policy uncertainty, bank deposits, and liability structure," Emerging Markets Review, Elsevier, vol. 55(C).

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    More about this item

    Keywords

    Banking governance; Ambiguity aversion; Depositor's behaviour; Bank runs;
    All these keywords.

    JEL classification:

    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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