Abstract
To understand the mechanisms behind bank run contagions, we conduct bank run experiments in a modified Diamond-Dybvig setup with two banks (Left and Right). The banks' liquidity levels are either linked or independent. Left Bank depositors see their bank's liquidity level before deciding. Right Bank depositors only see Left Bank withdrawals before deciding. We find that Left Bank depositors' actions significantly affect Right Bank depositors' behavior, even when liquidities are independent. Furthermore, a panic may be a one-way street: an increase in Left Bank withdrawals can cause a panic run on the Right Bank, but a decrease does not calm depositors.
Original language | English |
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Pages (from-to) | 39-51 |
Number of pages | 13 |
Journal | European Economic Review |
Volume | 72 |
DOIs | |
State | Published - 1 Nov 2014 |
Bibliographical note
Publisher Copyright:© 2014 Elsevier B.V.
Keywords
- Bank runs
- Contagion
- Experiments
- Multiple equilibria
ASJC Scopus subject areas
- Finance
- Economics and Econometrics