On Freezing Depositor Funds at Financially Distressed Banks: An Experimental Analysis

Douglas Davis and Robert Reilly

Journal of Money, Credit and Banking, 2016, vol. 48, issue 5, 989-1017

Abstract: This article reports an experiment conducted to evaluate the effects of alterations in the terms of repayments to depositors following a liquidity suspension, as well as the effect of alterations in the publicity of information about withdrawal behavior on the fragility of distressed banks. Results indicate that a “tough” renegotiation stance of protecting depositors who maintain their money in the bank, can quite effectively promote stability. Information provided to depositors regarding past withdrawal behavior weakens the effectiveness of a tough renegotiation policy but reduces fragility somewhat for a more lenient rescheduling condition.

Date: 2016
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https://doi.org/10.1111/jmcb.12324

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Working Paper: On Freezing Depositor Funds at Financially Distressed Banks: An Experimental Analysis (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:48:y:2016:i:5:p:989-1017

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