Understanding bank-run contagion

Martin Brown, Stefan Trautmann, Razvan Vlahu

Research output: Contribution to journalArticleScientificpeer-review

Abstract

We study experimental coordination games to examine through which
transmission channels, and under which information conditions, a panic-based depositor-run at one bank may trigger a panic-based depositor-run at another bank. We find that withdrawals at one bank trigger withdrawals at another bank by increasing players’ beliefs that other depositors in their own bank will withdraw, making them more likely to withdraw as well. Observed withdrawals only affect depositors’ beliefs, and are thus contagious, when they form an informative signal about bank fundamentals.
Original languageEnglish
Pages (from-to)2272-2282
JournalManagement Science
Volume63
Issue number7
Early online date28 Apr 2016
DOIs
Publication statusPublished - Jul 2017

Fingerprint

Bank runs
Contagion
Trigger
Experimental study
Coordination games

Keywords

  • contagion
  • bank runs
  • systemic risk

Cite this

Brown, Martin ; Trautmann, Stefan ; Vlahu, Razvan. / Understanding bank-run contagion. In: Management Science. 2017 ; Vol. 63, No. 7. pp. 2272-2282.
@article{94f84d842448413f9493c16c6bf8cc23,
title = "Understanding bank-run contagion",
abstract = "We study experimental coordination games to examine through whichtransmission channels, and under which information conditions, a panic-based depositor-run at one bank may trigger a panic-based depositor-run at another bank. We find that withdrawals at one bank trigger withdrawals at another bank by increasing players’ beliefs that other depositors in their own bank will withdraw, making them more likely to withdraw as well. Observed withdrawals only affect depositors’ beliefs, and are thus contagious, when they form an informative signal about bank fundamentals.",
keywords = "contagion, bank runs, systemic risk",
author = "Martin Brown and Stefan Trautmann and Razvan Vlahu",
year = "2017",
month = "7",
doi = "10.1287/mnsc.2015.2416",
language = "English",
volume = "63",
pages = "2272--2282",
journal = "Management Science",
issn = "0025-1909",
publisher = "INFORMS Inst.for Operations Res.and the Management Sciences",
number = "7",

}

Understanding bank-run contagion. / Brown, Martin; Trautmann, Stefan; Vlahu, Razvan.

In: Management Science, Vol. 63, No. 7, 07.2017, p. 2272-2282.

Research output: Contribution to journalArticleScientificpeer-review

TY - JOUR

T1 - Understanding bank-run contagion

AU - Brown, Martin

AU - Trautmann, Stefan

AU - Vlahu, Razvan

PY - 2017/7

Y1 - 2017/7

N2 - We study experimental coordination games to examine through whichtransmission channels, and under which information conditions, a panic-based depositor-run at one bank may trigger a panic-based depositor-run at another bank. We find that withdrawals at one bank trigger withdrawals at another bank by increasing players’ beliefs that other depositors in their own bank will withdraw, making them more likely to withdraw as well. Observed withdrawals only affect depositors’ beliefs, and are thus contagious, when they form an informative signal about bank fundamentals.

AB - We study experimental coordination games to examine through whichtransmission channels, and under which information conditions, a panic-based depositor-run at one bank may trigger a panic-based depositor-run at another bank. We find that withdrawals at one bank trigger withdrawals at another bank by increasing players’ beliefs that other depositors in their own bank will withdraw, making them more likely to withdraw as well. Observed withdrawals only affect depositors’ beliefs, and are thus contagious, when they form an informative signal about bank fundamentals.

KW - contagion

KW - bank runs

KW - systemic risk

U2 - 10.1287/mnsc.2015.2416

DO - 10.1287/mnsc.2015.2416

M3 - Article

VL - 63

SP - 2272

EP - 2282

JO - Management Science

JF - Management Science

SN - 0025-1909

IS - 7

ER -