Understanding Bank Runs: the Importance of Depositor-Bank Relationships and Networks
47 Pages Posted: 1 Sep 2008 Last revised: 10 Jul 2022
There are 2 versions of this paper
Understanding Bank Runs: The Importance of Depositor-Bank Relationships and Networks
Date Written: August 2008
Abstract
We use a unique, new, database to examine micro depositor level data for a bank that faced a run. We use minute-by-minute depositor withdrawal data to understand the effectiveness of deposit insurance, the role of social networks, and the importance of bank-depositor relationships in influencing depositor propensity to run. We employ methods from the epidemiology literature which examine how diseases spread to estimate transmission probabilities of depositors running, and the significant underlying factors. We find that deposit insurance is only partially effective in preventing bank runs. Further, our results suggest that social network effects are important but are mitigated by other factors, in particular the length and depth of the bank-depositor relationship. Depositors with longer relationships and those who have availed of loans from a bank are less likely to run during a crisis, suggesting that cross-selling acts not just as a revenue generator but also as a complementary insurance mechanism for the bank. Finally, we find there are 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.
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Banks' Liquidity and the Cost of Liquidity to Corporations
By Vitaly Bord and João A. C. Santos
-
A Crisis of Banks as Liquidity Providers
By Viral V. Acharya and Nada Mora
-
Are Banks Passive Liquidity Backstops? Deposit Rates and Flows During the 2007-2009 Crisis
By Viral V. Acharya and Nada Mora
-
Are Banks Passive Liquidity Backstops? Deposit Rates and Flows During the 2007-2009 Crisis
By Viral V. Acharya and Nada Mora
-
A Crisis of Banks as Liquidity Providers
By Viral V. Acharya and Nada Mora
-
Liquidity Shocks, Local Banks, and Economic Activity: Evidence from the 2007-2009 Crisis
-
A Crisis of Banks as Liquidity Providers
By Viral V. Acharya and Nada Mora
-
By Franklin Allen, Aneta Hryckiewicz, ...
-
By John C. Driscoll and Ruth Judson