Herding and Bank Runs
Chao Gu ()
Working Papers from Cornell University, Center for Analytic Economics
Traditional models of bank runs do not allow for herding effects, because in these models withdrawal decisions are assumed to be made simultaneously. I extend the banking model to allow a depositor to choose his withdrawal time. When he withdraws depends on his liquidity type (patient or impatient), his private, noisy signal about the quality of the bank's portfolio, and the withdrawal histories of the other depositors. In some cases, the optimal banking contract permits herding runs. Some of these "runs" are efficient in that the bank is liquidated before the portfolio worsens. Others are not efficient; these are cases in which the herd is misled.
JEL-codes: C73 D82 E59 G21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-cta and nep-gth
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Journal Article: Herding and bank runs (2011)
Working Paper: Herding and Bank Runs (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:corcae:07-15
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