Contagious bank runs |
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| Affiliation: | 1. Division of Economics, Staffordshire University, Leek Road, Stoke-on-Trent ST4 2DF, UK;1. School of Statistics, Shandong University of Finance and Economics, Jinan 250014, China;2. School of Mathematics and Statistics, Shandong University, Weihai 264209, China;1. Centro de Investigación en Matemáticas (CIMAT), Apdo. Postal 402, 36000 Guanajuato, Gto., Mexico;2. Departamento de Matemáticas, Universidad de Guanajuato, CP 36240, Guanajuato, Gto., Mexico;1. Institute of Telecommunications, Warsaw University of Technology, Poland;2. Department of Electrical and Information Technology, Lund University, Sweden;3. UMR CNRS 5506 LIRMM, Université de Montpellier, Montpellier, France;1. The Oxford-Man Institute, University of Oxford, Eagle House, Walton Well Road, Oxford OX2 6ED, United Kingdom;2. Mathematical Institute, University of Oxford, Woodstock Road, Oxford OX2 6GG, United Kingdom |
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| Abstract: | We present a model of the propagation process of bank runs. A bank failure alone is not sufficient to trigger a panic. In accord with the empirical evidence, runs become contagious only during periods of macroeconomic instability. In addition, we make a clear distinction between illiquidity and insolvency as possible causes of bank failures. We also show that, despite the possibility of runs, the deposit contract is superior to autarky. |
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