Bank Runs, Fast and Slow: From Behaviors to Dynamics

25 Pages Posted: 4 Oct 2019 Last revised: 21 Nov 2019

See all articles by Dan H. Tran

Dan H. Tran

University of Bordeaux - GREThA, CNRS

Date Written: September 30, 2019

Abstract

This paper studies the dynamic and behavioral aspects of bank runs. Existing mod- els mainly consider bank runs as coordination failures that occur instantly in simultaneous games. In the present model, bank runs arise as continuous cascades of withdrawals. Depositors make decisions based on (i) their types, (ii) their private information on total withdrawal, and (iii) the observed actions of others within a network. By both analytical and numerical methods, this paper makes two main contributions. First, the model can characterize the frequency, speed, and abruptness of dynamic runs. Particularly, there are two distinct patterns: slow runs that build up progressively vs. sudden runs that occur abruptly “out of nowhere”. Second, regarding the behavioral aspect, increase herding generates a trade-off between activation and speed of runs, bank runs are more frequent but slower to build up. By contrast, increase heterogeneity in information or types amplifies both activation and speed of runs, strictly increase bank failures.

Keywords: bank run; financial crisis; herding; nonlinear dynamics; networks; heterogeneous agents

JEL Classification: G01, G21, C63, D9

Suggested Citation

Tran, Dan H., Bank Runs, Fast and Slow: From Behaviors to Dynamics (September 30, 2019). Available at SSRN: https://ssrn.com/abstract=3459038 or http://dx.doi.org/10.2139/ssrn.3459038

Dan H. Tran (Contact Author)

University of Bordeaux - GREThA, CNRS ( email )

Avenue Léon Duguit
Pessac, 33608
France

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