Working Paper: CEPR ID: DP16581
Authors: Eva Schliephake; Joel Shapiro
Abstract: We examine a model in which depositor learning exacerbates bank runs. Informed depositors can quickly withdraw when the bank has low-quality assets. Uninformed depositors may decide to wait, which allows them to learn by observing informed depositors' actions. However, learning that the bank has low-quality assets will spark a run ex-post, which increases the incentives of uninformed depositors to run ex-ante. Moreover, when there are more informed depositors, uninformed depositors have a fear of missing out, which also makes preemptive runs more likely. Learning may, thus, increase the likelihood of panic runs and decrease surplus.
Keywords: information-based bank runs
JEL Codes: G21; G28; L13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Informed depositors withdraw quickly due to low-quality assets (E44) | Uninformed depositors are incentivized to withdraw as well (G21) |
| Presence of more informed depositors (G21) | Likelihood of uninformed depositors fearing they will miss out on withdrawals increases (E44) |
| Informed depositors' actions influence uninformed depositors' decisions (D83) | Higher likelihood of preemptive runs (C41) |
| Learning leads to inefficient liquidation of assets (G19) | Exacerbates the situation of bank runs (E44) |
| Presence of informed depositors (G21) | Increases likelihood of panic runs (E44) |