Herding and bank runs

https://doi.org/10.1016/j.jet.2010.06.001Get rights and content

Abstract

Traditional models of bank runs do not allow for herding effects, because in these models withdrawal decisions are assumed to be made simultaneously. I extend the banking model to allow a depositor to choose his withdrawal time. When he withdraws depends on his consumption type (patient or impatient), his private, noisy signal about the quality of the bank's portfolio, and the withdrawal histories of the other depositors. Some of these runs are efficient in that the bank is liquidated before the portfolio worsens. Others are not efficient; these are cases in which the herd is misled.

References (27)

  • C. Calomiris et al.

    The origins of banking panics, models, facts and banking regulation

  • C. Chamley et al.

    Information revelation and strategic delay in a model of investment

    Econometrica

    (1994)
  • V.V. Chari et al.

    Banking panics, information, and rational expectations equilibrium

    J. Finance

    (1988)
  • Cited by (0)

    1

    I would like to thank Levon Barseghyan, Pablo Becker, David Easley, Edward Green, Ani Guerdjikova, Joe Haslag, Ron Harstad, Todd Keister, Oksana Loginova, Tapan Mitra, Peter Mueser, James Peck, Neil Raymon, Assaf Razin, Fernando Vega-Redondo, Xinghe Wang, Tao Zhu, the associate editor, and two anonymous referees for insightful comments. I am especially grateful to Karl Shell for numerous discussions and helpful guidance. All remaining errors are my own.

    View full text