Abstract
This paper studies the dynamic and behavioral aspects of bank runs. Existing mod- els mainly consider bank runs as coordination failures that occur instantly in simultaneous games. In the present model, bank runs arise as continuous cascades of withdrawals. Depositors make decisions based on (i) their types, (ii) their private information on total withdrawal, and (iii) the observed actions of others within a network. By both analytical and numerical methods, this paper makes two main contributions. First, the model can characterize the frequency, speed, and abruptness of dynamic runs. Particularly, there are two distinct patterns: slow runs that build up progressively vs. sudden runs that occur abruptly “out of nowhere”. Second, regarding the behavioral aspect, increase herding generates a trade-off between activation and speed of runs, bank runs are more frequent but slower to build up. By contrast, increase heterogeneity in information or types amplifies both activation and speed of runs, strictly increase bank failures.
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