publication . Other literature type . Article . Preprint . 2014

An experiment on the causes of bank run contagions

Surajeet Chakravarty; Miguel A. Fonseca; Todd R. Kaplan;
Open Access
  • Published: 01 Nov 2014
  • Publisher: Elsevier BV
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.
Persistent Identifiers
Subjects
free text keywords: Economics and Econometrics, Finance, bank runs, contagion, experiment, multiple equilibria., Monetary economics, Market liquidity, Economics, Bank run, Open market operation, Left and right, jel:C72, jel:C92, jel:D43
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