Understanding Bank-Run Contagion

34 Pages Posted: 12 Aug 2014

See all articles by Martin Brown

Martin Brown

University of St. Gallen

Stefan Trautmann

Tilburg University

Razvan Vlahu

De Nederlandsche Bank; De Nederlandsche Bank

Date Written: May 19, 2014

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. Importantly though, observed withdrawals affect depositors’ beliefs, and are thus contagious, only when depositors know that there are economic linkages between their bank and the observed bank.

Keywords: contagion, bank runs, systemic risk

JEL Classification: D81, G21, G28

Suggested Citation

Brown, Martin and Trautmann, Stefan and Vlahu, Razvan, Understanding Bank-Run Contagion (May 19, 2014). ECB Working Paper No. 1711. Available at SSRN: https://ssrn.com/abstract=2438655

Martin Brown (Contact Author)

University of St. Gallen ( email )

Unterer Graben 21
St. Gallen, CH-9000
Switzerland

Stefan Trautmann

Tilburg University ( email )

P.O. Box 90153
Tilburg, DC 5000 LE
Netherlands

Razvan Vlahu

De Nederlandsche Bank ( email )

P.O. Box 98
Amsterdam, 1000 AB
Netherlands
+31205242483 (Phone)
+31205242506 (Fax)

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

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