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Bank runs as a coordination problem within a two-bank set-up: Who will survive?

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  • Shakina, Ekaterina

Abstract

We experimentally test a new extension of the Diamond and Dybvig model with two banks where, in addition to keeping and withdrawing, depositors of the first bank can relocate their deposits to the second bank at no cost. In contrast to the second bank, the first bank experiences more panics, although the number of simultaneous bank runs decreases. We highlight the importance of studying bank runs as a system-related phenomenon where depositors can change their initial deposit allocation.

Suggested Citation

  • Shakina, Ekaterina, 2019. "Bank runs as a coordination problem within a two-bank set-up: Who will survive?," Economics Letters, Elsevier, vol. 177(C), pages 85-88.
    • Handle: RePEc:eee:ecolet:v:177:y:2019:i:c:p:85-88
    DOI: 10.1016/j.econlet.2019.01.028
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    References listed on IDEAS

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    1. Saunders, Anthony & Wilson, Berry, 1996. "Contagious Bank Runs: Evidence from the 1929-1933 Period," Journal of Financial Intermediation, Elsevier, vol. 5(4), pages 409-423, October.
    2. Rajkamal Iyer & Manju Puri, 2012. "Understanding Bank Runs: The Importance of Depositor-Bank Relationships and Networks," American Economic Review, American Economic Association, vol. 102(4), pages 1414-1445, June.
    3. Shakina, Ekaterina & Angerer, Martin, 2018. "Coordination and communication during bank runs," Journal of Behavioral and Experimental Finance, Elsevier, vol. 20(C), pages 115-130.
    4. Chakravarty, Surajeet & Fonseca, Miguel A. & Kaplan, Todd R., 2014. "An experiment on the causes of bank run contagions," European Economic Review, Elsevier, vol. 72(C), pages 39-51.
    5. Paolo Crosetto & Antonio Filippin, 2013. "The “bomb” risk elicitation task," Journal of Risk and Uncertainty, Springer, vol. 47(1), pages 31-65, August.
    6. Martin Brown & Stefan T. Trautmann & Razvan Vlahu, 2017. "Understanding Bank-Run Contagion," Management Science, INFORMS, vol. 63(7), pages 2272-2282, July.
    7. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 24(Win), pages 14-23.
    8. Schumacher, Liliana, 2000. "Bank runs and currency run in a system without a safety net: Argentina and the 'tequila' shock," Journal of Monetary Economics, Elsevier, vol. 46(1), pages 257-277, August.
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    Cited by:

    1. Hubert J. Kiss & Ismael Rodriguez-Lara & Alfonso Rosa-Garcia, 2022. "Experimental bank runs," Chapters, in: Sascha Füllbrunn & Ernan Haruvy (ed.), Handbook of Experimental Finance, chapter 25, pages 347-361, Edward Elgar Publishing.
      • Hubert J. Kiss & Ismael Rodriguez-Lara & Alfonso Rosa-Garcia, 2021. "Experimental Bank Runs," ThE Papers 21/03, Department of Economic Theory and Economic History of the University of Granada..
    2. Hanemaaijer, Kyra & Marie, Olivier & Musumeci, Marco, 2023. "The Fast and the Studious? Ramadan Observance and Student Performance," IZA Discussion Papers 16249, Institute of Labor Economics (IZA).
    3. Kiss, Hubert J. & Rodriguez-Lara, Ismael & Rosa-Garcia, Alfonso, 2022. "Preventing (panic) bank runs," Journal of Behavioral and Experimental Finance, Elsevier, vol. 35(C).
    4. Kiss, Hubert János & Rodriguez-Lara, Ismael & Rosa-Garcia, Alfonso, 2022. "Who withdraws first? Line formation during bank runs," Journal of Banking & Finance, Elsevier, vol. 140(C).

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    More about this item

    Keywords

    Bank runs; Experiment; Coordination problem;
    All these keywords.

    JEL classification:

    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • G2 - Financial Economics - - Financial Institutions and Services

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