Bank Runs Without Sunspots

Francisco J. Santos-Arteaga ()
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Francisco J. Santos-Arteaga: Universidad Complutense de Madrid,Instituto Complutense de Estudios Internacionales (ICEI)

No 1002, Working Papers del Instituto Complutense de Estudios Internacionales from Universidad Complutense de Madrid, Instituto Complutense de Estudios Internacionales

Abstract: The literature on bank runs reduces all coordination mechanisms triggering attacks on banks to exogenous sunspots. We present a general equilibrium version of these models where the uncertainty faced by depositors is modeled explicitly, such that bank runs arise as optimal equilibrium outcomes corresponding to Bayesian coordination games played by rational agents before depositing. Differentials in information sets between the bank and its depositors lead to rational self-contained equilibrium runs. The coexistence of different beliefs in equilibrium jointly with the self-fulfilling nature of the attacks follow from Adam Smith's invisible hand principle. The runs obtained do not violate the revelation principle.

Keywords: Bank runs; Self-contained attacks; Bayesian coordination games; Revelation principle; Invisible hand principle; Pánicos bancarios; Ataques autocontenidos; Juegos de coordinación Bayesianos; Principio de revelación; Principios de la mano invisible. (search for similar items in EconPapers)
Pages: 33 pages
Date: 2010
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