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Bank Runs in Emerging‐Market Economies: Evidence from Turkey's Special Finance Houses

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  • Martha A. Starr
  • Rasim Yilmaz

Abstract

Recent banking crises in emerging‐market countries have renewed debates about deposit insurance. Because insurance erodes banks' incentives to manage risks prudently, some argue that its elimination would improve bank stability. Yet eliminating insurance could be destabilizing if it recreates risks of self‐fulfilling runs. This paper examines dynamics of depositor behavior during a set of runs on Turkey's Special Finance Houses, an uninsured sub‐sector of Islamic banks. Detailed data on withdrawals are analyzed in a vector autoregressive framework that enables us to distinguish between informational and self‐fulfilling elements of runs. We found that both types of dynamics were at work during the runs, suggesting a role for deposit insurance, judiciously used, in ruling out expectational problems that fuel tendencies to run.

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  • Martha A. Starr & Rasim Yilmaz, 2007. "Bank Runs in Emerging‐Market Economies: Evidence from Turkey's Special Finance Houses," Southern Economic Journal, John Wiley & Sons, vol. 73(4), pages 1112-1132, April.
    • Handle: RePEc:wly:soecon:v:73:y:2007:i:4:p:1112-1132
    DOI: 10.1002/j.2325-8012.2007.tb00820.x
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    Cited by:

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    2. Kiss, Hubert J. & Rodriguez-Lara, Ismael & Rosa-Garcia, Alfonso, 2022. "Preventing (panic) bank runs," Journal of Behavioral and Experimental Finance, Elsevier, vol. 35(C).
    3. Jamilov, Rustam & König, Tobias & Müller, Karsten & Saidi, Farzad, 2024. "Two Centuries of Systemic Bank Runs," CEPR Discussion Papers 19382, C.E.P.R. Discussion Papers.
    4. Xavier Vives, 2014. "Strategic Complementarity, Fragility, and Regulation," The Review of Financial Studies, Society for Financial Studies, vol. 27(12), pages 3547-3592.
    5. 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).
    6. Carlos Garriga & Chao Gu, 2012. "Withdrawal history, private information, and bank runs," Review, Federal Reserve Bank of St. Louis, vol. 94(July), pages 305-320.

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    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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