Governance by Depositors, Bank Runs and Ambiguity Aversion: A Theoretical Approach

31 Pages Posted: 14 Aug 2018

See all articles by François Guillemin

François Guillemin

National Research University Higher School of Economics

Date Written: August 13, 2018

Abstract

We investigate the theoretical relationship between ambiguity aversion and the decision to withdraw early from a deposit contract. We first document and define the concepts to illustrate our results. Then we extend the theoretical framework of Gorton (1985) to implement a model of maxmin expected utility to match the ambiguity aversion hypothesis. We observe that the most ambiguous depositors are more likely to mistakenly withdraw their deposits, reducing bank stability and leading to inefficient bank runs. We also show higher ambiguity levels negatively impact bank equity levels.

Keywords: Banking governance, ambiguity aversion, depositor's behaviour, bank runs

JEL Classification: G02, G18

Suggested Citation

Guillemin, François, Governance by Depositors, Bank Runs and Ambiguity Aversion: A Theoretical Approach (August 13, 2018). Higher School of Economics Research Paper No. WP BRP 68/FE/2018, Available at SSRN: https://ssrn.com/abstract=3229954 or http://dx.doi.org/10.2139/ssrn.3229954

François Guillemin (Contact Author)

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

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