Preventing (panic) bank runs

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

Journal of Behavioral and Experimental Finance, 2022, vol. 35, issue C

Abstract: We study experimentally an instrument to prevent bank runs in healthy banks. In particular, we extend the basic bank-run game, where depositors choose between withdrawing or keeping their money deposited, with a third option, the possibility to relocate funds to a priority account that is less profitable, but which guarantees a payoff even in a bank run. Theoretically, the use of this instrument dominates withdrawals for depositors without liquidity needs, and given this fact, depositors should optimally keep their deposits in the bank, so no bank run shall happen. In our experiment, we find evidence that the mechanism reduces not only bank runs that occur because of a coordination problem among depositors, but also panic bank runs that occur when depositors can observe the action of others. However, its effectiveness is limited and depositors seem not to recognize the protection it provides.

Keywords: Bank run; Coordination problem; Panic behavior; Experimental economics; Policy tools; Financial stability (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S2214635022000442

Related works:
Working Paper: Preventing (Panic) Bank Runs (2022)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:beexfi:v:35:y:2022:i:c:s2214635022000442

DOI: 10.1016/j.jbef.2022.100697

Access Statistics for this article

Journal of Behavioral and Experimental Finance is currently edited by Michael Dowling and Jürgen Huber

More articles in Journal of Behavioral and Experimental Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().