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Bank Runs in Emerging-Market Economies: Evidence from Turkey's Special Finance Houses

  • Martha A. Starr

    ()

    (Department of Economics, American University)

  • Rasim Yilmaz

    ()

    (Department of Economics, Dumlupinar University)

Recent banking crises in emerging-market countries have renewed debates about deposit insurance. Because insurance erodes banks' incentives to manage risks prudently, some argue that its elimination would improve bank stability. Yet eliminating insurance could be de-stabilizing if it recreates risks of self-fulfilling runs. This paper examines dynamics of depositor behavior during a set of runs on Turkey's Special Finance Houses, an uninsured sub-sector of Islamic banks. Detailed data on withdrawals are analyzed in a vector autoregressive framework that enables us to distinguish between informational and self-fulfilling elements of runs. We found that both types of dynamics were at work during the runs, suggesting a role for deposit insurance, judiciously used, in ruling out expectational problems that fuel tendencies to run.

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Article provided by Southern Economic Association in its journal Southern Economic Journal.

Volume (Year): 73 (2007)
Issue (Month): 4 (April)
Pages: 1112–1132

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Handle: RePEc:sej:ancoec:v:73:4:y:2007:p:1112-1132
Contact details of provider: Web page: http://www.southerneconomic.org/

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