Withdrawal history, private information, and bank runs
This paper provides a simple two-depositor, two-stage model to understand how a bank’s withdrawal history affects an individual’s decision about withdrawals, which could possibly trigger bank runs. Individual depositors have private information about their personal consumption types and receive noisy private signals about the quality of the bank’s portfolio. Depositors make publicly observable withdrawal decisions in sequence. Computed examples indicate that the optimal contract contingent on withdrawal histories can tolerate bank runs. These runs are triggered by unfavorable signals about a bank’s portfolio, and early liquidation of unsuccessful investments can avoid future losses. Because the signals are private, a depositor’s action is the only way to partially reveal his private information. A run- admitting bank contract allows information to be revealed. However, if signals are too noisy, bank runs may occur too often when fundamentals are strong. In this case, a bank would offer a run-proof contract. Given the relevant role of information, a policy that makes private information public would be useful to improve welfare and eliminate bank runs.>
Volume (Year): (2012)
Issue (Month): July ()
|Contact details of provider:|| Postal: P.O. Box 442, St. Louis, MO 63166|
Web page: http://www.stlouisfed.org/
More information through EDIRC
|Order Information:|| Web: https://research.stlouisfed.org/publications/ Email: |
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.:
- Martha A. Starr & Rasim Yilmaz, 2007.
"Bank Runs in Emerging-Market Economies: Evidence from Turkey's Special Finance Houses,"
Southern Economic Journal,
Southern Economic Association, vol. 73(4), pages 1112-1132, April.
- Martha A. Starr & Rasim Yilmaz, 2006. "Bank Runs in Emerging-Market Economies: Evidence from Turkey’s Special Finance Houses," Working Papers 2006-08, American University, Department of Economics.
- Gu, Chao, 2011. "Herding and bank runs," Journal of Economic Theory, Elsevier, vol. 146(1), pages 163-188, January.
When requesting a correction, please mention this item's handle: RePEc:fip:fedlrv:y:2012:i:july:p:305-320:n:v.94no.4. 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: (Anna Xiao)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.