Running Out of Bank Runs

Libich, Jan and Nguyen, Dat Thanh and Kiss, Hubert János (2023) Running Out of Bank Runs. JOURNAL OF FINANCIAL SERVICES RESEARCH, 64. pp. 1-39. ISSN 0920-8550

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Abstract

The theoretical literature on bank runs has modeled depositors’ withdrawal decision as a one-off choice, made simultaneously by all depositors. Our game-theoretic framework gives depositors a heterogeneous, stochastic opportunity to change their minds about withdrawing their money. They can run out of (or run into) the crowd in front of the bank based on their observation of what others have done. Depositors’ opportunity to change their decision supports implicit coordination, which in some circumstances reduces the probability that self-fulfilling bank runs will occur.

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