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When Prime Depositors Run on the Banks: A Behavioral Approach

Author

Listed:
  • Natanael Waraney Gerald Massie

    () (University of Indonesia)

  • Chaikal Nuryakin

    () (Researcher, Institute for Economic and Social Research, Faculty of Economics, University of Indonesia, Jakarta)

Abstract

This study aims to observe the relationship between withdrawal decisions and individual psychological aspects, namely time and risk preferences. Our sample is a pool of prime depositors in Indonesia, mainly due to the country’s deposit market being heavily concentrated on such depositors. We describe the elicited risk preferences of the aforementioned depositors, along with their preferences on how long they would keep their money deposited. We discuss relationships between their withdrawal decision, which in excessive amount could cause bank run situations, with risk and time preferences under idiosyncratic economic shocks. A cascade effect simulation is also included in our analysis.

Suggested Citation

  • Natanael Waraney Gerald Massie & Chaikal Nuryakin, 2017. "When Prime Depositors Run on the Banks: A Behavioral Approach," LPEM FEBUI Working Papers 201712, LPEM, Faculty of Economics and Business, University of Indonesia, revised Sep 2017.
  • Handle: RePEc:lpe:wpaper:201712
    as

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    File URL: http://www.lpem.org/repec/lpe/papers/WP201712.pdf
    File Function: First version, 2017
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    References listed on IDEAS

    as
    1. Catherine C. Eckel & Philip J. Grossman, 2002. "Sex Differences and Statistical Stereotyping in Attitudes Toward Financial Risk," Monash Economics Working Papers archive-03, Monash University, Department of Economics.
    2. Stephan Meier & Charles Sprenger, 2010. "Present-Biased Preferences and Credit Card Borrowing," American Economic Journal: Applied Economics, American Economic Association, vol. 2(1), pages 193-210, January.
    3. Vital Anderhub & Werner Güth & Uri Gneezy & Doron Sonsino, 2001. "On the Interaction of Risk and Time Preferences: An Experimental Study," German Economic Review, Verein für Socialpolitik, vol. 2(3), pages 239-253, August.
    4. John S. Jordan, 2000. "Depositor discipline at failing banks," New England Economic Review, Federal Reserve Bank of Boston, issue Mar, pages 15-28.
    5. Yehning Chen & Iftekhar Hasan, 2008. "Why Do Bank Runs Look Like Panic? A New Explanation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(2-3), pages 535-546, March.
    6. Choe, Heungsik & Lee, Bong-Soo, 2003. "Korean bank governance reform after the Asian financial crisis," Pacific-Basin Finance Journal, Elsevier, vol. 11(4), pages 483-508, September.
    7. Itay Goldstein & Ady Pauzner, 2005. "Demand–Deposit Contracts and the Probability of Bank Runs," Journal of Finance, American Finance Association, vol. 60(3), pages 1293-1327, June.
    8. Schumacher, Liliana, 2000. "Bank runs and currency run in a system without a safety net: Argentina and the 'tequila' shock," Journal of Monetary Economics, Elsevier, vol. 46(1), pages 257-277, August.
    9. Toshihiko Takemura & Takashi Kozu & Tetsuro Kobayashi, 2011. "The Empirical Study of Japanese Deposit Withdrawal Behaviors on Unstable Financial Environment," American Journal of Economics and Business Administration, Science Publications, vol. 3(2), pages 293-300, April.
    10. Pathan, Shams & Skully, Michael & Wickramanayake, J., 2008. "Reforms in Thai bank governance: The aftermath of the Asian financial crisis," International Review of Financial Analysis, Elsevier, vol. 17(2), pages 345-362.
    11. Schotter, Andrew & Yorulmazer, Tanju, 2009. "On the dynamics and severity of bank runs: An experimental study," Journal of Financial Intermediation, Elsevier, vol. 18(2), pages 217-241, April.
    12. Charness, Gary & Gneezy, Uri & Imas, Alex, 2013. "Experimental methods: Eliciting risk preferences," Journal of Economic Behavior & Organization, Elsevier, vol. 87(C), pages 43-51.
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    Cited by:

    1. Chaikal Nuryakin & Natanael Waraney Gerald Massie, 2018. "Does Deposit Insurance Matter? Behavioral Evidence from Indonesia," LPEM FEBUI Working Papers 201827, LPEM, Faculty of Economics and Business, University of Indonesia, revised 2018.

    More about this item

    Keywords

    Withdrawal Decision — Time Preference — Risk Preference — Bank Run — Prime Depositor;

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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