Information Acquisition in Rumor Based Bank Runs
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.
We thank the editor Bruno Biais, the Associate Editor, three anonymous referees, Fernando Anjos (discussant), Douglas Diamond, Philip Dybvig, Itay Goldstein, Rajkamal Iyer, Doron Levit (discussant), Dmitry Livdan, Alan Moreira, Uday Rajan, and Robert Vishny as well as seminar participants at AEA, Chicago Booth, Jackson Hole Finance Group, NY Fed, Rothschild Caesarea, SED, SFS Cavalcade, Southwest University of Finance and Economics (China), Tel Aviv U, Financial Theory Group workshop, and Wash U for helpful comments. Part of this project was completed while Zhiguo He visited the Institution of Financial Studies at Southwest University of Finance and Economics in Chengdu (China) in summer 2011. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Journal of Finance, Volume 71, Issue 3 June 2016 Pages 1113–1158 citation courtesy of