DP16581 Learning in Bank Runs
|Author(s):||Eva Schliephake, Joel Shapiro|
|Publication Date:||September 2021|
|Keyword(s):||information-based bank runs|
|JEL(s):||G21, G28, L13|
|Programme Areas:||Financial Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=16581|
We examine a model in which depositor learning exacerbates bank runs. Informed depositors can quickly withdraw when the bank has low-quality assets. Uninformed depositors may decide to wait, which allows them to learn by observing informed depositors' actions. However, learning that the bank has low-quality assets will spark a run ex-post, which increases the incentives of uninformed depositors to run ex-ante. Moreover, when there are more informed depositors, uninformed depositors have a fear of missing out, which also makes preemptive runs more likely. Learning may, thus, increase the likelihood of panic runs and decrease surplus.