Why do bank runs look like panic? A new explanation
AbstractThis paper demonstrates that, even if depositors are fully rational and always choose the Pareto dominant equilibrium when there are multiple equilibria, a bank run may still occur when depositors’ expectations of the bank’s fundamentals do not change. More specifically, a bank run may occur when depositors learn that noisy bank-specific information is revealed, or when they learn that precise bank-specific information is not revealed. The results in this paper are consistent with empirical evidence about bank runs. It also implies that suspension of convertibility can improve the efficiency of bank runs.
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Bibliographic InfoPaper provided by Bank of Finland in its series Research Discussion Papers with number 19/2006.
Length: 25 pages
Date of creation: 27 Sep 2006
Date of revision:
bank run; banking panic; suspension of convertibility;
Other versions of this item:
- Yehning Chen & Iftekhar Hasan, 2008. "Why Do Bank Runs Look Like Panic? A New Explanation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(2-3), pages 535-546, 03.
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-10-21 (All new papers)
- NEP-BAN-2006-10-21 (Banking)
- NEP-CBA-2006-10-21 (Central Banking)
- NEP-FIN-2006-10-21 (Finance)
- NEP-FMK-2006-10-21 (Financial Markets)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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