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Bank Runs and Costly Information

Author

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  • Semenova, M.

    (Laboratory for Institutional Analysis of Economic Reforms, IIA, National Research University - Higher School of Economics, Moscow, Russia)

Abstract

In this paper, we model the deposit market with costly information on bank risks. The model adds to the volume of literature related to the Diamond-Dybvig mod-el and related models of information-based bank runs. The inclusion of costly infor-mation signals indicates that depositors must decide whether to pay for information regarding changes in the riskiness of banking activities; these costs may involve, for instance, time and other resources needed to find and read financial information. We show that an efficient bank run is the only equilibrium even in case of non-negative information costs. To ensure the uniqueness of the efficient bank run equilibrium it is enough to lower the costs for at least one group of the depositors or introduce the deposit insurance system with co-insurance.

Suggested Citation

  • Semenova, M., 2011. "Bank Runs and Costly Information," Journal of the New Economic Association, New Economic Association, issue 10, pages 31-52.
    • Handle: RePEc:nea:journl:y:2011:i:10:p:31-52
    as

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    References listed on IDEAS

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    More about this item

    Keywords

    bank run; market discipline; banking system transparency;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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