Philippe Madiès (Université Pierre Mendès France–Grenoble 2)
Abstract
This article tests the possibility and the degree of persistence of self-fulfilling banking panics through an experimental protocol. Panics are proved to be persistent phenomena that are difficult to prevent. However, it seems possible to curb them through a learning effect caused by a temporary but sufficient suspension of the deposit availability, combined with a "narrow-banking" solution, which makes banks more liquid. Additionally, panic prevention requires a full deposit coverage to be effective. This suggests that the moral-hazard issue should not be tackled through a lower deposit coverage, especially in emerging countries' banking systems where depositors are likely to lose confidence.
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Article provided by University of Chicago Press in its journal Journal of Business.
Volume (Year): 79 (2006) Issue (Month): 4 (July) Pages: 1831-1866 Download reference. The following formats are available: HTML
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