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

Author

Listed:
  • Martha A. Starr

    () (Department of Economics, American University)

  • Rasim Yilmaz

    (Dumlupinar University, Kutahya, Turkey)

Abstract

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 destabilizing 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 find 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.

Suggested Citation

  • 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.
  • Handle: RePEc:amu:wpaper:0806
    DOI: 10.17606/tgsg-p298
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    File URL: https://doi.org/10.17606/tgsg-p298
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    bank runs; deposit insurance; Islamic banks; financial development;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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