Bank Runs and Interest Rates

The term structure of interest rates and the phenomenon of bank runs are widely but separately studied in the literature. In this paper, we introduce a simple term structure of interest rates in a bank runs model. By allowing depositors to use a symmetric mixed strategy, the probability of bank runs can be derived. Our simulation shows that a low short-term real interest rate or a high long-term real interest rate would raise the probability of bank runs. This result is consistent with recent empirical findings.