Understanding Bank Runs: Do Depositors Monitor Banks?

30 Pages Posted: 18 Mar 2012

See all articles by Rajkamal Iyer

Rajkamal Iyer

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Manju Puri

Duke University - Fuqua School of Business; NBER; FDIC

Nicholas Ryan

Harvard University; Abdul Latif Jameel Poverty Action Lab Global

Date Written: March 15, 2012

Abstract

We use unique, depositor-level data for a bank that faced a run and was placed in receivership to study whether depositors monitor banks. Depositors with uninsured balances, depositors with loan linkages and staff of the bank are far more likely to withdraw in response to the shock. We are able to contrast depositor behavior to this fundamental shock with an earlier panic at the same bank. Our results suggest that these withdrawals are due in part to the information known to depositors though overall this information appears to be very coarse. Our results provide direct evidence of depositor monitoring and the significance of fragility in a bank’s capital structure, and helps inform banking regulation.

Suggested Citation

Iyer, Rajkamal and Puri, Manju and Ryan, Nicholas, Understanding Bank Runs: Do Depositors Monitor Banks? (March 15, 2012). AFA 2013 San Diego Meetings Paper. Available at SSRN: https://ssrn.com/abstract=2023961 or http://dx.doi.org/10.2139/ssrn.2023961

Rajkamal Iyer (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States

Manju Puri

Duke University - Fuqua School of Business ( email )

100 Fuqua Drive
Box 90120
Durham, NC 27708-0120
United States
919-660-7657 (Phone)

NBER

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

FDIC ( email )

550 17th Street NW
Washington, DC 20429
United States

Nicholas Ryan

Harvard University

K239 1737 Cambridge St
Cambridge, MA 02138
United States

Abdul Latif Jameel Poverty Action Lab Global ( email )

79 JFK Street
Cambridge, MA 02138
United States
617-254-1830 (Phone)

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