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

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Author Info

  • Martha A. Starr

    ()
    (Department of Economics, American University)

  • Rasim Yilmaz

    (Dumlupinar University, Kutahya, Turkey)

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 destabilizing 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 find 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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File URL: http://w.american.edu/cas/economics/repec/amu/workingpapers/2006-08.pdf
File Function: First version, 2006
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Bibliographic Info

Paper provided by American University, Department of Economics in its series Working Papers with number 2006-08.

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Length: 33 pages
Date of creation: May 2006
Date of revision:
Handle: RePEc:amu:wpaper:0806

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Web page: http://www.american.edu/cas/economics/

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Keywords: bank runs; deposit insurance; Islamic banks; financial development;

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References

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  2. Bacchetta, Philippe & Aghion, Philippe & Banerjee, Abhijit, 2004. "Financial Development and the Instability of Open Economies," Scholarly Articles 4554209, Harvard University Department of Economics.
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  17. Yehning Chen, 1999. "Banking Panics: The Role of the First-Come, First-Served Rule and Information Externalities," Journal of Political Economy, University of Chicago Press, vol. 107(5), pages 946-968, October.
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Cited by:
  1. 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.
  2. 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.
  3. Vives, Xavier, 2011. "Strategic complementarity, fragility, and regulation," IESE Research Papers D/928, IESE Business School.
  4. Carlos Garriga & Chao Gu, 2012. "Withdrawal history, private information, and bank runs," Review, Federal Reserve Bank of St. Louis, issue July, pages 305-320.
  5. Alfonso Rosa García & Hubert Janos Kiss & Ismael Rodríguez Lara, 2009. "Do social networks prevent bank runs?," Working Papers. Serie AD 2009-25, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  6. Chao Gu, 2007. "Herding and Bank Runs," Working Papers 0716, Department of Economics, University of Missouri.
  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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