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Bank Panics, Suspensions, and Geography: Some Notes on the "Contagion of Fear" in Banking

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  • Smith, Bruce D

Abstract

Recent attempts to understand bank panics tend to emphasize informational asymmetries or the possibilities of multiple equilibria. Such approaches stand in contrast to historical research that emphasizes legal factors influencing the organization of the banking system. This paper constructs a model of a banking system operating under regulations similar to those in effect under the National Banking System and in which information is complete. In all other respect the model resembles that of Douglas W. Diamond and Philip Dybvig (1983). The results indicate that, given the regulatory environment, it would have been surprising if suspensions of convertibility had not recurred periodically. Copyright 1991 by Oxford University Press.

Suggested Citation

  • Smith, Bruce D, 1991. "Bank Panics, Suspensions, and Geography: Some Notes on the "Contagion of Fear" in Banking," Economic Inquiry, Western Economic Association International, vol. 29(2), pages 230-248, April.
    • Handle: RePEc:oup:ecinqu:v:29:y:1991:i:2:p:230-48
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    Cited by:

    1. Edward J. Stevens, 1991. "Is there any rationale for reserve requirements?," Economic Review, Federal Reserve Bank of Cleveland, vol. 27(Q III), pages 2-17.
    2. Douglas W. Diamond & Raghuram G. Rajan, 2005. "Liquidity Shortages and Banking Crises," Journal of Finance, American Finance Association, vol. 60(2), pages 615-647, April.
    3. Hoag, Christopher, 2005. "Deposit drains on "interest-paying" banks before financial crises," Explorations in Economic History, Elsevier, vol. 42(4), pages 567-585, October.
    4. Bougheas, Spiros, 1999. "Contagious bank runs," International Review of Economics & Finance, Elsevier, vol. 8(2), pages 131-146, June.
    5. Uhlig, Harald, 2010. "A model of a systemic bank run," Journal of Monetary Economics, Elsevier, vol. 57(1), pages 78-96, January.
    6. Committee, Nobel Prize, 2022. "Financial Intermediation and the Economy," Nobel Prize in Economics documents 2022-2, Nobel Prize Committee.
    7. John H. Boyd & Mark Gertler, 1993. "US Commercial Banking: Trends, Cycles, and Policy," NBER Chapters, in: NBER Macroeconomics Annual 1993, Volume 8, pages 319-377, National Bureau of Economic Research, Inc.
    8. Carlson, Mark, 2005. "Causes of bank suspensions in the panic of 1893," Explorations in Economic History, Elsevier, vol. 42(1), pages 56-80, January.
    9. Cooper, Russell & Ejarque, Joao, 1995. "Financial intermediation and the Great Depression: a multiple equilibrium interpretation," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 43(1), pages 285-323, December.
    10. Diamond, Douglas W. & Rajan, Raghuram G., 2001. "Banks, short-term debt and financial crises: theory, policy implications and applications," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 54(1), pages 37-71, June.
    11. Yang, Hsin-Feng & Liu, Chih-Liang & Chou, Ray Yeutien, 2014. "Interest rate risk propagation: Evidence from the credit crunch," The North American Journal of Economics and Finance, Elsevier, vol. 28(C), pages 242-264.
    12. William C. Hunter & David A. Marshall, 1999. "Thoughts on financial derivatives, systematic risk, and central banking: a review of some recent developments," Working Paper Series WP-99-20, Federal Reserve Bank of Chicago.
    13. Mathieu Bédard, 2016. "In Which Context is the Option Clause Desirable?," Journal of Business Ethics, Springer, vol. 139(2), pages 287-297, December.
    14. Raphael Solomon, 2004. "When Bad Things Happen to Good Banks: Contagious Bank Runs and Currency Crises," Staff Working Papers 04-18, Bank of Canada.
    15. Henrich R. Greve & Ji-Yub (Jay) Kim, 2014. "Running for the Exit: Community Cohesion and Bank Panics," Organization Science, INFORMS, vol. 25(1), pages 204-221, February.

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