Understanding bank-run contagion

Martin Brown*, Stefan T. Trautmann, Razvan Vlahu

*Corresponding author for this work

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
DOIs
Publication statusPublished - Jul 2017

Keywords

  • contagion
  • bank runs
  • systemic risk
  • asset commonality
  • DEPOSIT INSURANCE
  • LOSS-AVOIDANCE
  • COORDINATION
  • INFORMATION
  • PANICS
  • RISK
  • FAILURES

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