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Herding and Bank Runs

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  • Gu, Chao

    (U of Missouri, Columbia)

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Abstract

Traditional models of bank runs do not allow for herding effects, because in these models withdrawal decisions are assumed to be made simultaneously. I extend the banking model to allow a depositor to choose his withdrawal time. When he withdraws depends on his liquidity type (patient or impatient), his private, noisy signal about the quality of the bank's portfolio, and the withdrawal histories of the other depositors. In some cases, the optimal banking contract permits herding runs. Some of these "runs" are efficient in that the bank is liquidated before the portfolio worsens. Others are not efficient; these are cases in which the herd is misled.

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Paper provided by Cornell University, Center for Analytic Economics in its series Working Papers with number 07-15.

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Date of creation: Oct 2007
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Handle: RePEc:ecl:corcae:07-15

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Cited by:
  1. Carlos Garriga & Chao Gu, 2012. "Withdrawal history, private information, and bank runs," Review, Federal Reserve Bank of St. Louis, issue July, pages 305-320.
  2. 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).
  3. Azrieli, Yaron & Peck, James, 2012. "A bank runs model with a continuum of types," Journal of Economic Theory, Elsevier, vol. 147(5), pages 2040-2055.
  4. Pablo Kurlat, . "Optimal Stopping in a Model of Speculative Attacks," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics.
  5. Asaf Manela & Zhiguo He, 2012. "Information Acquisition in Rumor-Based Bank Runs," 2012 Meeting Papers 170, Society for Economic Dynamics.
  6. 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.
  7. Chao Gu, 2010. "Asymmetric Information and Bank Runs," Working Papers 1005, Department of Economics, University of Missouri.
  8. 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.
  9. Zhiguo He & Asaf Manela, 2012. "Information Acquisition in Rumor Based Bank Runs," NBER Working Papers 18513, National Bureau of Economic Research, Inc.

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