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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
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Kinateder, Markus & Kiss, Hubert János, 2014. "Sequential decisions in the Diamond–Dybvig banking model," Journal of Financial Stability, Elsevier, pages 149-160.
    2. Ahmet F. Aysan & Mustafa Disli & Meryem Duygun & Huseyin Ozturk, 2017. "Islamic Banks, Deposit Insurance Reform, and Market Discipline: Evidence from a Natural Framework," Journal of Financial Services Research, Springer;Western Finance Association, pages 257-282.
    3. Xavier Vives, 2014. "Strategic Complementarity, Fragility, and Regulation," Review of Financial Studies, Society for Financial Studies, vol. 27(12), pages 3547-3592.
    4. Kiss, Hubert Janos & Rodriguez-Lara, Ismael & Rosa-García, Alfonso, 2014. "Do social networks prevent or promote bank runs?," Journal of Economic Behavior & Organization, Elsevier, vol. 101(C), pages 87-99.
    5. David Csercsik & Hubert Janos Kiss, 2016. "Optimal payments to connected depositors in turbulent times-a Markov chain approach," IEHAS Discussion Papers 1609, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
    6. Kiss, Hubert J. & Rodriguez-Lara, Ismael & Rosa-Garcia, Alfonso, 2014. "Do women panic more than men? An experimental study of financial decisions," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 52(C), pages 40-51.
    7. Alfonso Rosa García & Hubert Janos Kiss & Ismael Rodríguez Lara, 2009. "Do social networks prevent bank runs?," Working Papers. Serie AD 2009-25, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    8. Sümeyra Atmaca & Koen Schoors & Marijn Verschelde, 2016. "Bank Loyalty, Social Networks And Crisis," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 16/923, Ghent University, Faculty of Economics and Business Administration.
    9. Martin Dufwenberg, 2014. "Banking on Experiments?," Working Papers 534, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    10. Kiss, H.J. & Rodriguez-Lara, I. & Rosa-García, A., 2016. "Think twice before running! Bank runs and cognitive abilities," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 64(C), pages 12-19.
    11. Gu, Chao, 2011. "Herding and bank runs," Journal of Economic Theory, Elsevier, vol. 146(1), pages 163-188, January.
    12. Hubert Janos Kiss & Ismael Rodriguez-Lara & Alfonso Rosa-Garcia, 2017. "Panic bank runs," IEHAS Discussion Papers 1710, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
    13. Kiss, Hubert János & Rodriguez-Lara, Ismael & Rosa-García, Alfonso, 2015. "Kognitív képességek és stratégiai bizonytalanság egy bankrohamkísérletben
      [Cognitive abilities and strategic uncertainty in a bank-run experiment]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(10), pages 1030-1047.
    14. Karlo Kauko, 2016. "Does Opaqueness Make Equity Capital Expensive for Banks?," REVISTA DE ECONOMÍA DEL ROSARIO, UNIVERSIDAD DEL ROSARIO, pages 203-227.
    15. Carlos Garriga & Chao Gu, 2012. "Withdrawal history, private information, and bank runs," Review, Federal Reserve Bank of St. Louis, issue July, pages 305-320.
    16. Markus Kinateder & Hubert Janos Kiss & Agnes Pinter, 2015. "Would depositors like to show others that they do not withdraw? Theory and Experiment," IEHAS Discussion Papers 1553, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.

    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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