Understanding Bank Runs: The Importance of Depositor-Bank Relationships and Networks
Massachusetts Institute of Technology (MIT) - Sloan School of Management
Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER)
AFA 2008 New Orleans Meetings Paper
We use unique depositor level data for a bank that faced a run to understand factors such as the effectiveness of deposit insurance in preventing bank runs. We find uninsured depositors are most likely to run. Deposit insurance helps, but is only partially effective. Other factors that affect bank runs are the length and depth of the bank-depositor relationship, and social networks. We also find long term effects of a solvent bank run in that depositors who run do not return back to the bank. Our results help understand the underlying dynamics of bank runs and hold important policy implications.
Number of Pages in PDF File: 50
Keywords: Bank Runs, Relationships, Loan Linkages, Deposit insurance
JEL Classification: G21working papers series
Date posted: March 20, 2007 ; Last revised: April 14, 2011
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