Bank Runs in Emerging-Market Economies: Evidence from Turkey’s Special Finance Houses
AbstractRecent 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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Bibliographic InfoPaper provided by American University, Department of Economics in its series Working Papers with number 2006-08.
Length: 33 pages
Date of creation: May 2006
Date of revision:
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Web page: http://www.american.edu/cas/economics/
bank runs; deposit insurance; Islamic banks; financial development;
Other versions of this item:
- Martha A. Starr & Rasim Yilmaz, 2007. "Bank Runs in Emerging-Market Economies: Evidence from Turkey's Special Finance Houses," Southern Economic Journal, Southern Economic Association, vol. 73(4), pages 1112â1132, April.
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-05-20 (All new papers)
- NEP-CBA-2006-05-20 (Central Banking)
- NEP-FIN-2006-05-20 (Finance)
- NEP-FMK-2006-05-20 (Financial Markets)
- NEP-IAS-2006-05-20 (Insurance Economics)
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