The effects of social media use by bank depositors

Jianglin Dennis Ding () and George G. Pennacchi ()
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Jianglin Dennis Ding: Roger Williams University
George G. Pennacchi: University of Illinois

Annals of Finance, 2024, vol. 20, issue 3, No 1, 289-300

Abstract: Abstract A simple model is developed to analyze the effects of social media use by a bank’s uninsured depositors. While social media increases the likelihood of bank runs, it can be ex-ante beneficial to a bank by raising its shareholders’ equity. Social media enhances monitoring of a bank’s financial condition, thereby giving uninsured depositors a valuable option to withdraw early and avoid potential losses in states when a bank is likely to be insolvent. Recognizing this option, uninsured depositors require a lower promised interest rate that reduces the bank’s cost of funding at the expense of a greater liability for the bank’s deposit insurer.

Keywords: Social media; Bank runs; Deposit insurance (search for similar items in EconPapers)
JEL-codes: G21 G38 G41 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s10436-024-00450-9

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