Understanding Bank Runs: The Importance of Depositor-Bank Relationships and Networks

AFA 2008 New Orleans Meetings Paper

50 Pages Posted: 20 Mar 2007 Last revised: 14 Apr 2011

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

Multiple version iconThere are 2 versions of this paper

Date Written: June 2010

Abstract

We use unique depositor level data for a bank that faced a run to understand factors such as the effectiveness of deposit insurance in preventing bank runs. We find uninsured depositors are most likely to run. Deposit insurance helps, but is only partially effective. Other factors that affect bank runs are the length and depth of the bank-depositor relationship, and social networks. We also find 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.

Keywords: Bank Runs, Relationships, Loan Linkages, Deposit insurance

JEL Classification: G21

Suggested Citation

Iyer, Rajkamal and Puri, Manju, Understanding Bank Runs: The Importance of Depositor-Bank Relationships and Networks (June 2010). AFA 2008 New Orleans Meetings Paper. Available at SSRN: https://ssrn.com/abstract=972696 or http://dx.doi.org/10.2139/ssrn.972696

Rajkamal Iyer

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

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

Manju Puri (Contact Author)

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

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