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Preventing (Panic) Bank Runs

Author

Listed:
  • Hubert J. Kiss

    (Centre for Economic and Regional Studies, Corvinus University of Budapest)

  • Ismael Rodriguez-Lara

    (Universidad de Malaga, Teoria e Historia Economica, Economic Science Institute (ESI), Chapman University)

  • Alfonso Rosa-Garcia

    (Universidad de Murcia, Campus Universitario de Espinardo)

Abstract

Andolfatto et al. (2017) proposes a mechanism to eliminate bank runs that occur as a coordination problem among depositors (Diamond and Dybvig, 1983). Building on their work, we conduct a laboratory experiment where we offer depositors the possibility to relocate their funds to a priority account. We find evidence that the mechanism reduces not only bank runs that occur because of a coordination problem among depositors but also panic bank runs (Kiss et al., 2018) that occur when depositors can observe the action of others.

Suggested Citation

  • Hubert J. Kiss & Ismael Rodriguez-Lara & Alfonso Rosa-Garcia, 2022. "Preventing (Panic) Bank Runs," CERS-IE WORKING PAPERS 2213, Institute of Economics, Centre for Economic and Regional Studies.
    • Handle: RePEc:has:discpr:2213
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    References listed on IDEAS

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    More about this item

    Keywords

    bank run; coordination problem; panic behavior; experimental economics; policy tools; financial stability;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G40 - Financial Economics - - Behavioral Finance - - - General

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