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Bank Runs and Inequality

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  • Monroy-Taborda Sebastián

Abstract

In this paper, I examine the relationship between income inequality and bank runs. Analyzing data for 17 countries between 1880 and 2013, I find a positive (and statistically significant) correlation between income inequality and the likelihood of bank runs. I propose a banking model to explore the mechanism underpinning this correlation. This model predicts that rising inequality increases the probability of a bank run. Furthermore, I find that income inequality increases consumption allocations in equilibrium, as they depend on the aggregate level of endowment, and the bank can redistribute between depositors, leading to a higher risk in the bank’s investment portfolio.

Suggested Citation

  • Monroy-Taborda Sebastián, 2023. "Bank Runs and Inequality," Asociación Argentina de Economía Política: Working Papers 4672, Asociación Argentina de Economía Política.
    • Handle: RePEc:aep:anales:4672
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    More about this item

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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