Why do bank runs look like panic? A new explanation

Yehning Chen and Iftekhar Hasan

No 19/2006, Bank of Finland Research Discussion Papers from Bank of Finland

Abstract: This paper demonstrates that, even if depositors are fully rational and always choose the Pareto dominant equilibrium when there are multiple equilibria, a bank run may still occur when depositors' expectations of the bank's fundamentals do not change.More specifically, a bank run may occur when depositors learn that noisy bank-specific information is revealed, or when they learn that precise bank-specific information is not revealed.The results in this paper are consistent with empirical evidence about bank runs. It also implies that suspension of convertibility can improve the efficiency of bank runs.

Keywords: bank run; banking panic; suspension of convertibility (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2006
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https://www.econstor.eu/bitstream/10419/212044/1/bof-rdp2006-019.pdf (application/pdf)

Related works:
Journal Article: Why Do Bank Runs Look Like Panic? A New Explanation (2008)
Journal Article: Why Do Bank Runs Look Like Panic? A New Explanation (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bofrdp:rdp2006_019

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