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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.
    9. David Backus & Silverio Foresi & Liuren Wu, 2002. "Contagion in Financial Markets," Finance 0207009, University Library of Munich, Germany.
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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. Gert Schnabel, 2002. "Output trends and Okun's law," BIS Working Papers 111, Bank for International Settlements.
    3. Zhu, Haibin, 2005. "Bank runs, welfare and policy implications," Journal of Financial Stability, Elsevier, vol. 1(3), pages 279-307, April.
    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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