Bailouts and bank runs: Theory and evidence from TARP
During the recent financial crisis, there were bank runs right after government bailout announcements. This paper develops a global game model of information based bank runs to analyze how the announcement of bailouts affects investors’ bank run incentives. The equilibrium probability of bank runs is uniquely determined. I conclude that before the announcement, the existence of such bailout policy reduces investors’ bank run incentives, but after the announcement, investors may run on the bank, since such an announcement reflects the government's information about the bad bank asset. The empirical evidence from TARP is consistent with my theory.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
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.:
- Itay Goldstein & Ady Pauzner, 2005. "Demand-Deposit Contracts and the Probability of Bank Runs," Journal of Finance, American Finance Association, vol. 60(3), pages 1293-1327, 06.
- Markus K. Brunnermeier, 2009. "Deciphering the Liquidity and Credit Crunch 2007-2008," Journal of Economic Perspectives, American Economic Association, vol. 23(1), pages 77-100, Winter.
- Todd Keister, 2014.
"Bailouts and Financial Fragility,"
Departmental Working Papers
201401, Rutgers University, Department of Economics.
- Shleifer, Andrei & Vishny, Robert W, 1997.
" The Limits of Arbitrage,"
Journal of Finance,
American Finance Association, vol. 52(1), pages 35-55, March.
- Andrei Shleifer & Robert W. Vishny, 1995. "The Limits of Arbitrage," NBER Working Papers 5167, National Bureau of Economic Research, Inc.
- Andrei Shleifer ad Robert W. Vishny, 1995. "The Limits of Arbitrage," Harvard Institute of Economic Research Working Papers 1725, Harvard - Institute of Economic Research.
- Veronesi, Pietro & Zingales, Luigi, 2009.
CEPR Discussion Papers
7528, C.E.P.R. Discussion Papers.
- Douglas W. Diamond & Philip H. Dybvig, 2000.
"Bank runs, deposit insurance, and liquidity,"
Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
When requesting a correction, please mention this item's handle: RePEc:eee:eecrev:v:64:y:2013:i:c:p:169-180. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)
If references are entirely missing, you can add them using this form.