Experimental evidence on bank runs under partial deposit insurance

Abstract : This paper presents experimental evidence on depositor behavior under partial deposit insurance schemes. In the experiment, the size of a deposit insurance fund cannot fully cover all deposits and the level of insurance depends on the number of depositors running on the bank. We show that this form of strategic uncertainty about deposit coverage exerts a signi ficant impact on the propensity to withdraw, and results in a large frequency of bank runs. Runs are more likely when depositors have noisy information about the size of the insurance fund and as the maximum coverage increases, in line with a risk-dominant equilibrium selection mechanism. From a policy perspective, our results emphasize the limits of underfunded deposit insurance schemes in preventing systemic banking crises.
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Pré-publication, Document de travail
ESSEC Working paper. Document de Recherche ESSEC / Centre de recherche de l’ESSEC. ISSN : 1291-9616. WP 1705. 2017
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Soumis le : mercredi 19 avril 2017 - 16:44:46
Dernière modification le : jeudi 11 janvier 2018 - 06:20:26

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Oana Peia, Radu Vranceanu. Experimental evidence on bank runs under partial deposit insurance. ESSEC Working paper. Document de Recherche ESSEC / Centre de recherche de l’ESSEC. ISSN : 1291-9616. WP 1705. 2017. 〈hal-01510692〉

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