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American Economic Review: Vol. 102 No. 4 (June 2012)

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Understanding Bank Runs: The Importance of Depositor-Bank Relationships and Networks

Article Citation

Iyer, Rajkamal, and Manju Puri. 2012. "Understanding Bank Runs: The Importance of Depositor-Bank Relationships and Networks." American Economic Review, 102(4): 1414-45.

DOI: 10.1257/aer.102.4.1414

Abstract

We use unique depositor-level data for a bank that faced a run to understand the factors that affect depositor behavior. We find uninsured depositors are most likely to run. Deposit insurance helps, but is only partially effective. Bank-depositor relationships mitigate runs, suggesting that relationship with depositors help banks reduce fragility. In addition, we also find that social networks matter. Finally, we find long-term effects of a solvent bank run in that depositors who run do not return back to the bank. Our results help understand the underlying dynamics of bank runs and hold important policy implications. (JEL D12, G21, O16, Z13)

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Authors

Iyer, Rajkamal (MIT)
Puri, Manju (Duke U)

JEL Classifications

D12: Consumer Economics: Empirical Analysis
G21: Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
O16: Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
Z13: Economic Sociology; Economic Anthropology; Social and Economic Stratification


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