Who withdraws first? Line formation during bank runs

We study how lines form in front of banks. In our model, depositors choose first the level of effort to arrive early at the bank and then whether or not to withdraw their deposit. We argue that the informational environment (i.e. the possibility of observing the action of others) affects the emergen...

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Bibliographic Details
Published inIDEAS Working Paper Series from RePEc
Main Authors Kiss, Hubert J, Rodriguez-Lara, Ismael, Rosa-Garcia, Alfonso
Format Paper
LanguageEnglish
Published St. Louis Federal Reserve Bank of St. Louis 01.01.2020
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Summary:We study how lines form in front of banks. In our model, depositors choose first the level of effort to arrive early at the bank and then whether or not to withdraw their deposit. We argue that the informational environment (i.e. the possibility of observing the action of others) affects the emergence of bank runs and should, therefore, influence the line formation. We test it experimentally and find that the informational environment has no effect on the line formation, while expectations on the occurrence of bank runs, irrationality of depositors and their loss aversion are important factors to explain it.