An Experiment on the Causes of Bank Run Contagions

Surajeet Chakravarty, Miguel Fonseca and Todd Kaplan
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Surajeet Chakravarty: Department of Economics, University of Exeter

No 1206, Discussion Papers from University of Exeter, Department of Economics

Abstract: To understand the mechanisms behind bank run contagions, we conduct bank run experiments in a modified Diamond-Dybvig setup with two banks (Left and Right). The banks' liquidity levels are either linked or independent. Left Bank depositors see their bank's liquidity level before deciding. Right Bank depositors only see Left Bank withdrawals before deciding. We find that Left Bank depositors' actions signicantly affect Right Bank depositors' behavior, even when liquidities are independent. Furthermore, a panic may be a one-way street: an increase in Left Bank withdrawals can cause a panic run on the Right Bank, but a decrease cannot calm markets.

Keywords: bank runs; contagion; experiment; multiple equilibria. (search for similar items in EconPapers)
JEL-codes: C72 C92 D43 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-ban, nep-cba, nep-exp, nep-gth and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Journal Article: An experiment on the causes of bank run contagions (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:exe:wpaper:1206

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