Would depositors pay to show that they do not withdraw? Theory and experiment
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Would depositors pay to show that they do not withdraw? Theory and experiment Markus Kinateder1 · Hubert János Kiss2,3 · Ágnes Pintér4 Received: 3 April 2017 / Revised: 30 October 2019 / Accepted: 8 November 2019 © The Author(s) 2020
Abstract In a Diamond–Dybvig type model of financial intermediation, we allow depositors to announce at a positive cost to subsequent depositors that they keep their funds deposited in the bank. Theoretically, the mere availability of public announcements (and not its use) ensures that no bank run is the unique equilibrium outcome. Multiple equilibria—including bank run—exist without such public announcements. We test the theoretical results in the lab and find a widespread use of announcements, which we interpret as an attempt to coordinate on the no bank run outcome. Withdrawal rates in general are lower in information sets that contain announcements. Keywords Asymmetric information · Bank runs · Experimental evidence · Public information JEL Classification C72 · C91 · D80 · G21
We are grateful to Gyorgy Kozics for research assistance, and thank Júlia Király, and (seminar) participants of SAEe 2016, GAMES 2016, MKE 2015, UECE Lisbon Meetings 2015, and Institute of Economics of the Research Centre for Economic and Regional Studies of the Hungarian Academy of Sciences (HAS) for their helpful comments. This research was supported by the Higher Education Institutional Excellence Program of the Ministry of Human Capacities in the framework of the ‘Financial and Public Services’ research project (NKFIH-1163-10/2019) at Corvinus University of Budapest. The usual disclaimers apply. M. Kinateder: Financial support from the Spanish Ministry of Economics (SME) through grants ECO2017-85503-R and PGC2018-098131-B-100 is gratefully acknowledged. H. J. Kiss: Financial support from the Spanish Ministry of Economy, Industry and Competitiveness under project ECO2017-82449-P, the National Research, Development and Innovation (NKFIH) under project K 119683 is gratefully acknowledged. Á. Pintér: Financial support from the Spanish Ministry of Economy, Industry and Competitiveness under research project ECO2017-82449-P is gratefully acknowledged. Electronic supplementary material The online version of this article (https://doi.org/10.1007/s1068 3-020-09646-y) contains supplementary material, which is available to authorized users. * Hubert János Kiss [email protected] Extended author information available on the last page of the article
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1 Introduction Mitigating the potential for bank runs has not been an important policy concern in developed economies since the Great Depression. Interest in financial fragility has peaked in recent years, however, with the 2007–2009 financial crisis, which was heralded by a run on the British bank Northern Rock. In distinction to earlier episodes of bank runs, the run at Northern Rock was initiated not by a panic among small retail depositors, but by large institutional investors who stopped rolling over
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