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Evaluating Theories Of Bank Runs With Heterogeneity Restrictions

Author

Listed:
  • Ferre Graeve
  • Alexei Karas

Abstract

This paper empirically tests theories of bank runs. We use a structural panel VAR to extract runs from deposit market data. Identification exploits cross-sectional heterogeneity in deposit insurance: we identify bank runs as adverse deposit market supply shocks hitting uninsured banks harder compared to insured. Conditional on a run, we study the behavior of uninsured banks with bad and good fundamentals. We find that both experience runs, but deposit outflows at the former are more severe. Panic effects, which affect all uninsured deposits alike, irrespective of fundamentals, dominate in the aggregate. Insured banks partially absorb the outflow of uninsured deposits.

Suggested Citation

  • Ferre Graeve & Alexei Karas, 2014. "Evaluating Theories Of Bank Runs With Heterogeneity Restrictions," Journal of the European Economic Association, European Economic Association, vol. 12(4), pages 969-996, August.
  • Handle: RePEc:bla:jeurec:v:12:y:2014:i:4:p:969-996
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    File URL: http://hdl.handle.net/10.1111/jeea.12080
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    Citations

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    Cited by:

    1. Ching-Wai (Jeremy) Chiu & John Hill, 2018. "The Rate Elasticity of Retail Deposits in the United Kingdom: A Macroeconomic Investigation," International Journal of Central Banking, International Journal of Central Banking, vol. 14(2), pages 113-158, March.
    2. repec:eee:jeborg:v:144:y:2017:i:c:p:87-96 is not listed on IDEAS
    3. Ambrocio, Gene, 2017. "The real effects of overconfidence and fundamental uncertainty shocks," Research Discussion Papers 37/2017, Bank of Finland.
    4. De Santis, Roberto A. & Zimic, Srečko, 2017. "Spillovers among sovereign debt markets: identification by absolute magnitude restrictions," Working Paper Series 2055, European Central Bank.
    5. Foley-Fisher, Nathan & Narajabad, Borghan N. & Verani, Stephane, 2015. "Self-fulfilling Runs: Evidence from the U.S. Life Insurance Industry," Finance and Economics Discussion Series 2015-32, Board of Governors of the Federal Reserve System (U.S.).
    6. Kinateder, Markus & Kiss, Hubert János, 2014. "Sequential decisions in the Diamond–Dybvig banking model," Journal of Financial Stability, Elsevier, vol. 15(C), pages 149-160.
    7. Markus Kinateder & Hubert Janos Kiss & Agnes Pinter, 2015. "Would depositors like to show others that they do not withdraw? Theory and Experiment," IEHAS Discussion Papers 1553, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
    8. Ambrocio, Gene, 2017. "The real effects of overconfidence and fundamental uncertainty shocks," Research Discussion Papers 37, Bank of Finland.
    9. Kiss, Hubert János & Rodriguez-Lara, Ismael & Rosa-García, Alfonso, 2015. "Kognitív képességek és stratégiai bizonytalanság egy bankrohamkísérletben
      [Cognitive abilities and strategic uncertainty in a bank-run experiment]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(10), pages 1030-1047.

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