Informational Contagion of Bank Runs in a Third-Generation Crisis Model

Posted: 7 Mar 2006

See all articles by Victor Vaugirard

Victor Vaugirard

TEAM-CNRS, University of Paris at Sorbonne

Abstract

This paper highlights the international spread of bank runs in a third-generation model of financial crises through an informational channel. Banks' short-term liabilities include loans granted by foreign creditors who have imperfect information about the liquidation costs of banks' assets. A bank panic in a country induces lenders to downgrade early-liquidation yields in other countries, and thus to require higher interest rates to enable their banks to roll over their maturing debt. Those banks become therefore more prone to self-fulfilling depositors' runs. The paper then studies the effect on contagion of increased transparency and bailouts.

Keywords: Contagion, bank panics, transparency, bailouts

JEL Classification: F3, G2, D8

Suggested Citation

Vaugirard, Victor, Informational Contagion of Bank Runs in a Third-Generation Crisis Model. Journal of International Money and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=887910

Victor Vaugirard (Contact Author)

TEAM-CNRS, University of Paris at Sorbonne ( email )

Maison des Sciences Economiques
106-112 Boulevard de l'Hôpital
Paris, F-75013
France

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