Information Acquisition in Rumor-Based Bank Runs
We study the endogenous information acquisition and withdrawal-redeposit decisions of individual agents when a liquidity event triggers a spreading rumor and therefore exposes a bank to a run. Uncertainty about the bank's liquidity and potential failure motivates agents who hear the rumor to acquire additional information, and in equilibrium depositors with unfavorable information run on the bank gradually. Although the bank run equilibrium is unique given the additional signal's quality, multiple equilibria emerge with endogenous information acquisition. A bank run equilibrium exists when agents aggressively acquire information. We study the threshold parameters that eliminate bank runs. Public provision of solvency information (e.g. stress tests) can eliminate bank runs by indirectly crowding-out individual depositors' effort to acquire liquidity information. However, providing too much information that slightly differentiates competing solvent-but-illiquid banks can result in inefficient runs.
|Date of creation:||2012|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.EconomicDynamics.org/society.htm
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Abreu, Dilip & Brunnermeier, Markus K., 2002. "Synchronization risk and delayed arbitrage," Journal of Financial Economics, Elsevier, vol. 66(2-3), pages 341-360.
- Nikitin, Maxim & Smith, R. Todd, 2008. "Information acquisition, coordination, and fundamentals in a financial crisis," Journal of Banking & Finance, Elsevier, vol. 32(6), pages 907-914, June.
- Gu, Chao, 2007.
"Herding and Bank Runs,"
07-15, Cornell University, Center for Analytic Economics.
- Stephen Morris & Hyun Song Shin, 2002. "Social Value of Public Information," American Economic Review, American Economic Association, vol. 92(5), pages 1521-1534, December.
- Brunnermeier, Markus K & Morgan, John, 2006.
"Clock Games: Theory and Experiments,"
Competition Policy Center, Working Paper Series
qt9c11m09n, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
- Morgan, John, 2004. "Clock Games: Theory and Experiments," Santa Cruz Department of Economics, Working Paper Series qt81m0r0jj, Department of Economics, UC Santa Cruz.
- Markus K Brunnermeier & John Morgan, 2004. "Clock Games: Theory and Experiments," Levine's Bibliography 122247000000000401, UCLA Department of Economics.
- Kelly, M. & O'Grada, C., 1999.
"Market Contagion: Evidence from the Panics of 1854 and 1857,"
99/19, College Dublin, Department of Political Economy-.
- Cormac O Grada & Morgan Kelly, 2000. "Market Contagion: Evidence from the Panics of 1854 and 1857," American Economic Review, American Economic Association, vol. 90(5), pages 1110-1124, December.
- Jacklin, Charles J & Bhattacharya, Sudipto, 1988. "Distinguishing Panics and Information-Based Bank Runs: Welfare and Policy Implications," Journal of Political Economy, University of Chicago Press, vol. 96(3), pages 568-92, June.
- Christian Hellwig & Laura Veldkamp, 2006.
"Knowing what others Know: Coordination motives in information acquisition,"
2006 Meeting Papers
361, Society for Economic Dynamics.
- Christian Hellwig & Laura Veldkamp, 2009. "Knowing What Others Know: Coordination Motives in Information Acquisition," Review of Economic Studies, Oxford University Press, vol. 76(1), pages 223-251.
- Laura Veldkamp & Christian Hellwig, 2006. "Knowing What Others Know: Coordination Motives in Information Acquisition," Working Papers 06-14, New York University, Leonard N. Stern School of Business, Department of Economics.
- Hellwig, Christian & Veldkamp, Laura, 2007. "Knowing What Others Know: Coordination Motives in Information Acquisition," CEPR Discussion Papers 6506, C.E.P.R. Discussion Papers.
- Huberto M. Ennis & Todd Keister, 2007.
"Bank runs and institutions : the perils of intervention,"
07-02, Federal Reserve Bank of Richmond.
- Huberto M. Ennis & Todd Keister, 2009. "Bank Runs and Institutions: The Perils of Intervention," American Economic Review, American Economic Association, vol. 99(4), pages 1588-1607, September.
- Acharya, Viral V. & Schnabl, Philipp & Suarez, Gustavo, 2013.
"Securitization without risk transfer,"
Journal of Financial Economics,
Elsevier, vol. 107(3), pages 515-536.
- Viral V. Acharya & Philipp Schnabl & Gustavo Suarez, 2010. "Securitization without risk transfer," NBER Working Papers 15730, National Bureau of Economic Research, Inc.
- Acharya, Viral V & Schnabl, Philipp & Suarez, Gustavo, 2012. "Securitization Without Risk Transfer," CEPR Discussion Papers 8769, C.E.P.R. Discussion Papers.
- 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, 06.
- repec:ucn:oapubs:10197/438 is not listed on IDEAS
- Gr da, Cormac & White, Eugene N., 2003. "The Panics of 1854 and 1857: A View from the Emigrant Industrial Savings Bank," The Journal of Economic History, Cambridge University Press, vol. 63(01), pages 213-240, March.
- Douglas W. Diamond & Philip H. Dybvig, 2000.
"Bank runs, deposit insurance, and liquidity,"
Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
- repec:bla:restud:v:76:y:2009:i:1:p:223-251 is not listed on IDEAS
- repec:ucn:oapubs:10197/459 is not listed on IDEAS
- Gorton, Gary, 1985. "Bank suspension of convertibility," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 177-193, March.
- Chari, V V & Jagannathan, Ravi, 1988. " Banking Panics, Information, and Rational Expectations Equilibrium," Journal of Finance, American Finance Association, vol. 43(3), pages 749-61, July.
When requesting a correction, please mention this item's handle: RePEc:red:sed012:170. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann)
If references are entirely missing, you can add them using this form.