Learning in Bank Runs

Joel Shapiro and Eva Schliephake

No 16581, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We examine a model in which depositor learning exacerbates bank runs. Informed depositors can quickly withdraw when the bank has low-quality assets. Uninformed depositors may decide to wait, which allows them to learn by observing informed depositors' actions. However, learning that the bank has low-quality assets will spark a run ex-post, which increases the incentives of uninformed depositors to run ex-ante. Moreover, when there are more informed depositors, uninformed depositors have a fear of missing out, which also makes preemptive runs more likely. Learning may, thus, increase the likelihood of panic runs and decrease surplus.

Keywords: Information-based; bank; runs (search for similar items in EconPapers)
JEL-codes: G21 G28 L13 (search for similar items in EconPapers)
Date: 2021-09
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