Information Acquisition in Rumor-Based Bank Runs

Asaf Manela and Zhiguo He ()
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Asaf Manela: Washington University in St. Louis

No 170, 2012 Meeting Papers from Society for Economic Dynamics

Abstract: 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: 2012
New Economics Papers: this item is included in nep-ban and nep-cta
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Citations: View citations in EconPapers (7)

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Related works:
Journal Article: Information Acquisition in Rumor‐Based Bank Runs (2016)
Working Paper: Information Acquisition in Rumor Based Bank Runs (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed012:170

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