Working Paper: NBER ID: w18513
Authors: Zhiguo He; Asaf Manela
Abstract: We study information acquisition and dynamic withdrawal decisions when a spreading rumor exposes a solvent bank to a run. Uncertainty about the bank's liquidity and potential failure motivates depositors who hear the rumor to acquire additional noisy signals. Depositors with less informative signals may wait before gradually running on the bank, leading to an endogenous aggregate withdrawal speed and bank survival time. Private information acquisition about liquidity can subject solvent-but-illiquid banks to runs, and shorten the survival time of failing banks. Public provision of solvency information can mitigate runs by indirectly crowding-out individual depositors' effort to acquire liquidity information.
Keywords: information acquisition; bank runs; liquidity; dynamic withdrawal decisions
JEL Codes: E61; G01; G21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| private information acquisition about liquidity (G19) | destructive runs on solvent banks (G33) |
| destructive runs on solvent banks (G33) | shorter survival time of failing banks (G21) |
| depositors acquiring bad signals about liquidity (G21) | immediate withdrawal (F32) |
| depositors acquiring fair signals about liquidity (G21) | earlier withdrawal than without information (J26) |
| fear of withdrawals by depositors with bad signals (E44) | increased perceived hazard rate for those with fair signals (G41) |
| increased perceived hazard rate for those with fair signals (G41) | sooner withdrawal (J26) |
| public provision of solvency information (G33) | mitigate runs (Q54) |
| absence of information acquisition (D83) | unlikely occurrence of bank runs (E44) |
| information acquisition allowed (D83) | emergence of two equilibria (C62) |
| two equilibria (D59) | one no-run equilibrium and one run-acquisition equilibrium (D51) |