Contagious Bank Runs: Experimental Evidence
Martin Brown (),
Stefan Trautmann and
Razvan Vlahu ()
DNB Working Papers from Netherlands Central Bank, Research Department
We conduct a laboratory experiment to examine under which circumstances a depositor-run at one bank may lead to a depositor-run at another bank. We implement two-person coordination games which capture the essence of the Diamond-Dybvig (1983) bank-run model. Subjects in the roles of followers observe the deposit withdrawal decisions of leaders before they make their own deposit withdrawal decisions. In one treatment followers know that there are no economic linkages between the leaders' and the followers' banks. In a second treatment followers know that there are economic linkages between the leaders' and the followers' banks. Our results suggest that deposit withdrawals are strongly contagious across banks only when depositors know that there are economic linkages between banks. The contagion of withdrawals is by a change in beliefs about bank asset quality and in beliefs about the behavior of other depositors, with the latter channel being more pronounced. Our results reconcile panic-based and information-based explanations of bank runs.
Keywords: Contagion; Bank runs; Systemic risk (search for similar items in EconPapers)
JEL-codes: D81 G21 G28 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-exp and nep-net
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10) Track citations by RSS feed
Downloads: (external link)
Working Paper: Contagious Bank Runs: Experimental Evidence (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:dnb:dnbwpp:363
Access Statistics for this paper
More papers in DNB Working Papers from Netherlands Central Bank, Research Department Contact information at EDIRC.
Bibliographic data for series maintained by Richard Heuver ().