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Bank Runs in Emerging-Market Economies: Evidence from Turkey's Special Finance Houses

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  • Martha A. Starr

    ()
    (Department of Economics, American University)

  • Rasim Yilmaz

    ()
    (Department of Economics, Dumlupinar University)

Abstract

Recent banking crises in emerging-market countries have renewed debates about deposit insurance. Because insurance erodes banks' incentives to manage risks prudently, some argue that its elimination would improve bank stability. Yet eliminating insurance could be de-stabilizing if it recreates risks of self-fulfilling runs. This paper examines dynamics of depositor behavior during a set of runs on Turkey's Special Finance Houses, an uninsured sub-sector of Islamic banks. Detailed data on withdrawals are analyzed in a vector autoregressive framework that enables us to distinguish between informational and self-fulfilling elements of runs. We found that both types of dynamics were at work during the runs, suggesting a role for deposit insurance, judiciously used, in ruling out expectational problems that fuel tendencies to run.

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Bibliographic Info

Article provided by Southern Economic Association in its journal Southern Economic Journal.

Volume (Year): 73 (2007)
Issue (Month): 4 (April)
Pages: 1112–1132

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Handle: RePEc:sej:ancoec:v:73:4:y:2007:p:1112-1132

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Cited by:
  1. 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.
  2. Markus Kinateder & Hubert Janos Kiss, 2012. "Sequential decisions in the Diamond-Dybvig banking model," Working Papers. Serie AD 2012-16, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  3. Vives, Xavier, 2011. "Strategic complementarity, fragility, and regulation," IESE Research Papers D/928, IESE Business School.
  4. Garcia-Rosa, Alfonso & Kiss, Hubert Janos & Rodriguez-Lara, Ismael, 2010. "Do Social Networks Prevent Bank Runs?," UMUFAE Economics Working Papers 9723, DIGITUM. Universidad de Murcia.
  5. Gu, Chao, 2007. "Herding and Bank Runs," Working Papers 07-15, Cornell University, Center for Analytic Economics.
  6. Carlos Garriga & Chao Gu, 2012. "Withdrawal history, private information, and bank runs," Review, Federal Reserve Bank of St. Louis, issue July, pages 305-320.
  7. 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.

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