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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

    (Dumlupinar University, Kutahya, Turkey)

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.

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File URL: http://w.american.edu/cas/economics/repec/amu/workingpapers/2006-08.pdf
File Function: First version, 2006
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Paper provided by American University, Department of Economics in its series Working Papers with number 2006-08.

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Length: 33 pages
Date of creation: May 2006
Date of revision:
Handle: RePEc:amu:wpaper:0806
Contact details of provider: Web page: http://www.american.edu/cas/economics/

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