Who withdraws first? Line formation during bank runs

Hubert Janos Kiss, Ismael Rodriguez-Lara and Alfonso Rosa-García

Journal of Banking & Finance, 2022, vol. 140, issue C

Abstract: We study how lines form in front of banks. In our model, depositors choose first the level of effort to arrive early at the bank and then whether or not to withdraw their deposit. We argue that the informational environment (i.e., the possibility of observing the action of others) affects the emergence of bank runs and should, therefore, influence the line formation. We test this prediction experimentally. While the informational environment has no effect on the line formation when we look at the average level of effort, our findings suggest that the reasons to arrive early at the bank varies across informational environment. Thus, expectations on the occurrence of bank run are key to explain the level of effort when depositors cannot observe the action of others. In this setting, depositors who expect a run arrive early at the bank to withdraw their funds. If actions can be observed, however, those who expect a run arrive early at the bank to keep their funds deposited. Depending on the informational environment, there are other factors (e.g., irrationality of depositors or loss aversion) that also explain the behavior of depositors.

Keywords: Bank run; Beliefs; Experimental economics; Line formation; Loss aversion; Observability (search for similar items in EconPapers)
JEL-codes: C91 D90 G21 G40 J16 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Working Paper: Who withdraws first? Line formation during bank runs (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:140:y:2022:i:c:s0378426622000905

DOI: 10.1016/j.jbankfin.2022.106491

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