Self-fulfilling bank panics: how to avoid them ? an experimental study

Philippe Madiès ()
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Philippe Madiès: GATE - Groupe d'analyse et de théorie économique - UL2 - Université Lumière - Lyon 2 - ENS LSH - Ecole Normale Supérieure Lettres et Sciences Humaines - CNRS - Centre National de la Recherche Scientifique

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Abstract: The purpose of this paper is to verify experimentally the possibility and the degree of persistence of a self-fulfilling bank panic. Furthermore, we test various means to prevent or to curb it: the suspension of deposit convertibility, the "narrow banking" solution. We confirm the possibility of pure-panic bank runs as formalized by Diamond and Dybvig (1983). However, this situation remains rare. Partial and self-fulfilling bank runs represent a more general situation. That reinforces the idea of strong coordination failures as it was observed in the previous experimental literature. Panics are proved to be persistent phenomena which are difficult to prevent. However, it seems to be possible to curb them using a learning effect entailed by a temporary but enough long suspension of the deposit convertibility or using a narrow banking solution which enables banks to be more liquid.

Keywords: bank panic; bank regulation; deposit guarantee; experimental study; panics' prevention; pure-panic bank run; suspension of convertibility; étude expérimentale; garantie des dépôts; panique bancaire; prévention des paniques; pure panique bancaire; réglementation bancaire; suspension de la conversion (search for similar items in EconPapers)
Date: 2001
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Published in 2001

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