On the effects of deposit insurance and observability on bank runsan experimental study

  1. Hubert Janos Kiss 1
  2. Ismael Rodríguez Lara 2
  3. Alfonso Rosa García 3
  1. 1 Universidad Autónoma de Madrid
    info

    Universidad Autónoma de Madrid

    Madrid, España

    ROR https://ror.org/01cby8j38

  2. 2 Universitat de València
    info

    Universitat de València

    Valencia, España

    ROR https://ror.org/043nxc105

  3. 3 Universidad de Murcia
    info

    Universidad de Murcia

    Murcia, España

    ROR https://ror.org/03p3aeb86

Zeitschrift:
Working papers = Documentos de trabajo: Serie AD

Datum der Publikation: 2011

Nummer: 5

Seiten: 1-22

Art: Arbeitsdokument

Zusammenfassung

We study the effects of deposit insurance and observability of previous actions on the emergence of bank runs by means of a controlled laboratory experiment. We consider three depositors in the line of a bank, who decide between withdrawing or keeping their money deposited. We have three treatments with different levels of deposit insurance which reflect the losses a depositor may incur in the case of a bank run. We find that different levels of deposit insurance and the possibility of observing other depositors' actions affect the likelihood of bank runs. When decisions are not observable, higher levels of deposit insurance decrease the probability of bank runs. When decisions are observable, this is not the case. These results suggest that (i) observability might be considered as a partial substitute of deposit insurance, and that (ii) the optimal deposit insurance should take into account the degree of observability.