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
Date Written: June 2010
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: Suggested Citation