Why do bank runs look like panic? A new explanation
Journal
Journal of Money, Credit and Banking
Journal Volume
40
Journal Issue
2-3
Pages
535
Date Issued
2008-03-01
Author(s)
Hasan, Iftekhar
Abstract
This paper demonstrates that, even if depositors are fully rational and always choose the Pareto-dominant equilibrium when there are multiple equilibria, a bank run may still occur when depositors' expectations on the bank's fundamentals do not change. More specifically, a bank run may occur when depositors learn that noisy bank-specific information will be revealed, or when they learn that precise bank-specific information will not be revealed. The results in this paper are consistent with the empirical evidence about bank runs. It also implies that suspension of convertibility can improve the efficiency of bank runs. © 2008 The Ohio State University.
Subjects
Bank run | Banking panic | Suspension of convertibility
Publisher
WILEY
Type
journal article