Bank Panics, Suspensions, and Geography: Some Notes on the "Contagion of Fear" in Banking

Bruce Smith

Economic Inquiry, 1991, vol. 29, issue 2, 230-48

Abstract: Recent attempts to understand bank panics tend to emphasize informational asymmetries or the possibilities of multiple equilibria. Such approaches stand in contrast to historical research that emphasizes legal factors influencing the organization of the banking system. This paper constructs a model of a banking system operating under regulations similar to those in effect under the National Banking System and in which information is complete. In all other respect the model resembles that of Douglas W. Diamond and Philip Dybvig (1983). The results indicate that, given the regulatory environment, it would have been surprising if suspensions of convertibility had not recurred periodically. Copyright 1991 by Oxford University Press.

Date: 1991
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