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Learning in Bank Runs

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  • Shapiro, Joel
  • Schliephake, Eva

Abstract

We examine a model in which depositor learning exacerbates bank runs. Informed depositors can quickly withdraw when the bank has low-quality assets. Uninformed depositors may decide to wait, which allows them to learn by observing informed depositors' actions. However, learning that the bank has low-quality assets will spark a run ex-post, which increases the incentives of uninformed depositors to run ex-ante. Moreover, when there are more informed depositors, uninformed depositors have a fear of missing out, which also makes preemptive runs more likely. Learning may, thus, increase the likelihood of panic runs and decrease surplus.

Suggested Citation

  • Shapiro, Joel & Schliephake, Eva, 2021. "Learning in Bank Runs," CEPR Discussion Papers 16581, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:16581
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    More about this item

    Keywords

    Information-based bank runs;

    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
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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