IDEAS home Printed from https://ideas.repec.org/p/zbw/bofrdp/rdp2006_019.html
   My bibliography  Save this paper

Why do bank runs look like panic? A new explanation

Author

Listed:
  • Chen, Yehning
  • Hasan, Iftekhar

Abstract

This paper demonstrates that, even if depositors are fully rational and always choose the Pareto dominant equilibrium when there are multiple equilibria, a bank run may still occur when depositors' expectations of the bank's fundamentals do not change.More specifically, a bank run may occur when depositors learn that noisy bank-specific information is revealed, or when they learn that precise bank-specific information is not revealed.The results in this paper are consistent with empirical evidence about bank runs. It also implies that suspension of convertibility can improve the efficiency of bank runs.

Suggested Citation

  • Chen, Yehning & Hasan, Iftekhar, 2006. "Why do bank runs look like panic? A new explanation," Bank of Finland Research Discussion Papers 19/2006, Bank of Finland.
    • Handle: RePEc:zbw:bofrdp:rdp2006_019
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/212044/1/bof-rdp2006-019.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. 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.
    2. repec:bla:jfinan:v:43:y:1988:i:3:p:749-61 is not listed on IDEAS
    3. Chen, Yehning & Hasan, Iftekhar, 2006. "The transparency of the banking system and the efficiency of information-based bank runs," Journal of Financial Intermediation, Elsevier, vol. 15(3), pages 307-331, July.
    4. Calomiris, Charles W., 1990. "Is Deposit Insurance Necessary? A Historical Perspective," The Journal of Economic History, Cambridge University Press, vol. 50(2), pages 283-295, June.
    5. Hasan, Iftekhar & Dwyer, Gerald P, Jr, 1994. "Bank Runs in the Free Banking Period," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(2), pages 271-288, May.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Yehning Chen & Iftekhar Hasan, 2008. "Why Do Bank Runs Look Like Panic? A New Explanation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(2‐3), pages 535-546, March.
    2. Yehning Chen & Iftekhar Hasan, 2008. "Why Do Bank Runs Look Like Panic? A New Explanation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(2-3), pages 535-546, March.
    3. repec:zbw:bofrdp:2006_019 is not listed on IDEAS
    4. Gorton, Gary & Huang, Lixin, 2006. "Bank panics and the endogeneity of central banking," Journal of Monetary Economics, Elsevier, vol. 53(7), pages 1613-1629, October.
    5. Paul Goldsmith-Pinkham & Tanju Yorulmazer, 2010. "Liquidity, Bank Runs, and Bailouts: Spillover Effects During the Northern Rock Episode," Journal of Financial Services Research, Springer;Western Finance Association, vol. 37(2), pages 83-98, June.
    6. Thorsten V. Koppl & James MacGee, 2001. "Limited enforcement and efficient interbank arrangements," Working Papers 608, Federal Reserve Bank of Minneapolis.
    7. Qian, Meijun & Tanyeri, Başak, 2017. "Litigation and mutual-fund runs," Journal of Financial Stability, Elsevier, vol. 31(C), pages 119-135.
    8. Acharya, Viral & Yorulmazer, Tanju, 2003. "Information Contagion and Inter-Bank Correlation in a Theory of Systemic Risk," CEPR Discussion Papers 3743, C.E.P.R. Discussion Papers.
    9. Usman Bashir & Shoaib Khan & Abdulhafiz Jones & Muntazir Hussain, 2021. "Do banking system transparency and market structure affect financial stability of Chinese banks?," Economic Change and Restructuring, Springer, vol. 54(1), pages 1-41, February.
    10. Danisewicz, Piotr & Lee, Chun Hei & Schaeck, Klaus, 2022. "Private deposit insurance, deposit flows, bank lending, and moral hazard," Journal of Financial Intermediation, Elsevier, vol. 52(C).
    11. Sánchez-Ballesta, Juan Pedro & Lloréns, Mercedes Bernal, 2010. "Monitoring, reputation and accountability in issuing banks in mid-nineteenth-century Spain," Explorations in Economic History, Elsevier, vol. 47(4), pages 403-419, October.
    12. König-Kersting, Christian & Trautmann, Stefan T. & Vlahu, Razvan, 2022. "Bank instability: Interbank linkages and the role of disclosure," Journal of Banking & Finance, Elsevier, vol. 134(C).
    13. Dwyer Jr., Gerald P. & Samartín, Margarita, 2009. "Why do banks promise to pay par on demand?," Journal of Financial Stability, Elsevier, vol. 5(2), pages 147-169, June.
    14. Gorton, Gary & Winton, Andrew, 2003. "Financial intermediation," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 8, pages 431-552, Elsevier.
    15. Miller, V., 1998. "Domestic bank runs and speculative attacks on foreign currencies," Journal of International Money and Finance, Elsevier, vol. 17(2), pages 331-338, April.
    16. Renee Courtois Haltom & Jeffrey M. Lacker, 2015. "Should the Fed Have a Financial Stability Mandate? Lessons from the Fed's First 100 Years," Economic Quarterly, Federal Reserve Bank of Richmond, issue 1Q, pages 49-75.
    17. Dr. Nicole Allenspach, 2009. "Banking and Transparency: Is More Information Always Better?," Working Papers 2009-11, Swiss National Bank.
    18. International Association of Deposit Insurers, 2020. "Evaluation of Differential Premium Systems for Deposit Insurance," IADI Research Papers 20-06, International Association of Deposit Insurers.
    19. Goldstein, Itay & Razin, Assaf, 2015. "Three Branches of Theories of Financial Crises," Foundations and Trends(R) in Finance, now publishers, vol. 10(2), pages 113-180, 30.
    20. repec:zbw:bofrdp:2012_009 is not listed on IDEAS
    21. Carletti, Elena & Leonello, Agnese & Marquez, Robert, 2023. "Loan guarantees, bank underwriting policies and financial stability," Journal of Financial Economics, Elsevier, vol. 149(2), pages 260-295.
    22. Charles W. Calomiris & Gary Gorton, 1991. "The Origins of Banking Panics: Models, Facts, and Bank Regulation," NBER Chapters, in: Financial Markets and Financial Crises, pages 109-174, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    bank run; banking panic; suspension of convertibility;
    All these keywords.

    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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:bofrdp:rdp2006_019. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/bofgvfi.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.