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Bank runs without self-fulfilling prophecies

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  • Haibin Zhu

Abstract

This paper proposes that bank runs are unique equilibrium outcomes instead of self-fulfilling prophecies. By assuming that depositors make their withdrawal decisions sequentially, the model provides an equilibrium-selection mechanism in the economy. A bank run would occur if and only if depositors perceive a low return on bank assets. Furthermore, a panic situation arises only when the market information is imperfect. A two-stage variant of the model shows that banks would deliberately offer a demand-deposit contract that is susceptive to bank runs.

Suggested Citation

  • Haibin Zhu, 2001. "Bank runs without self-fulfilling prophecies," BIS Working Papers 106, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:106
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    References listed on IDEAS

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    7. James Peck & Karl Shell, 2003. "Equilibrium Bank Runs," Journal of Political Economy, University of Chicago Press, vol. 111(1), pages 103-123, February.
    8. R. Glenn Hubbard, 1991. "Financial Markets and Financial Crises," NBER Books, National Bureau of Economic Research, Inc, number glen91-1, July.
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    Cited by:

    1. Spiegel, Mark M., 2005. "Solvency runs, sunspot runs, and international bailouts," Journal of International Economics, Elsevier, vol. 65(1), pages 203-219, January.
    2. Zhu, Haibin, 2005. "Bank runs, welfare and policy implications," Journal of Financial Stability, Elsevier, vol. 1(3), pages 279-307, April.
    3. Gert Schnabel, 2002. "Output trends and Okun's law," BIS Working Papers 111, Bank for International Settlements.
    4. Iskandar Simorangkir, 2011. "Bank Run Determinants in Indonesia: Bad Luck or Fundamental Factors?," EcoMod2011 3557, EcoMod.
    5. Serge Jeanneau & Marian Micu, 2002. "Determinants of international bank lending to emerging market countries," BIS Working Papers 112, Bank for International Settlements.

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    More about this item

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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