Information Acquisition in Rumor Based Bank Runs

55 Pages Posted: 3 Nov 2012 Last revised: 1 Feb 2023

See all articles by Zhiguo He

Zhiguo He

Stanford University - Knight Management Center

Asaf Manela

Washington University in St. Louis - John M. Olin Business School; Reichman University

Multiple version iconThere are 2 versions of this paper

Date Written: November 2012

Abstract

We study information acquisition and dynamic withdrawal decisions when a spreading rumor exposes a solvent bank to a run. Uncertainty about the bank's liquidity and potential failure motivates depositors who hear the rumor to acquire additional noisy signals. Depositors with less informative signals may wait before gradually running on the bank, leading to an endogenous aggregate withdrawal speed and bank survival time. Private information acquisition about liquidity can subject solvent-but-illiquid banks to runs, and shorten the survival time of failing banks. Public provision of solvency information can mitigate runs by indirectly crowding-out individual depositors' effort to acquire liquidity information.

Suggested Citation

He, Zhiguo and Manela, Asaf, Information Acquisition in Rumor Based Bank Runs (November 2012). NBER Working Paper No. w18513, Available at SSRN: https://ssrn.com/abstract=2170636

Zhiguo He (Contact Author)

Stanford University - Knight Management Center ( email )

655 Knight Way
Stanford, CA 94305-7298
United States

Asaf Manela

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States
314-935-9178 (Phone)

HOME PAGE: http://apps.olin.wustl.edu/faculty/manela

Reichman University ( email )

Israel

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