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Information Acquisition in Rumor-Based Bank Runs

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  • Asaf Manela

    (Washington University in St. Louis)

  • Zhiguo He

    (University of Chicago)

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    Abstract

    We study the endogenous information acquisition and withdrawal-redeposit decisions of individual agents when a liquidity event triggers a spreading rumor and therefore exposes a bank to a run. Uncertainty about the bank's liquidity and potential failure motivates agents who hear the rumor to acquire additional information, and in equilibrium depositors with unfavorable information run on the bank gradually. Although the bank run equilibrium is unique given the additional signal's quality, multiple equilibria emerge with endogenous information acquisition. A bank run equilibrium exists when agents aggressively acquire information. We study the threshold parameters that eliminate bank runs. Public provision of solvency information (e.g. stress tests) can eliminate bank runs by indirectly crowding-out individual depositors' effort to acquire liquidity information. However, providing too much information that slightly differentiates competing solvent-but-illiquid banks can result in inefficient runs.

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    Bibliographic Info

    Paper provided by Society for Economic Dynamics in its series 2012 Meeting Papers with number 170.

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    Date of creation: 2012
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    Handle: RePEc:red:sed012:170

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    1. Acharya, Viral V & Schnabl, Philipp & Suarez, Gustavo, 2012. "Securitization Without Risk Transfer," CEPR Discussion Papers 8769, C.E.P.R. Discussion Papers.
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    9. Huberto M. Ennis & Todd Keister, 2009. "Bank Runs and Institutions: The Perils of Intervention," American Economic Review, American Economic Association, vol. 99(4), pages 1588-1607, September.
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    Cited by:
    1. Manela, Asaf, 2014. "The value of diffusing information," Journal of Financial Economics, Elsevier, vol. 111(1), pages 181-199.

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