Endogenously unstable demand deposit contracts: triggering bank runs without sunspots
Di Caprio D
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The literature on bank runs reduces all coordination mechanisms triggering attacks on banks to exogenous realizations derived from either fundamental or sunspot variables. The authors present a general equilibrium version of these models where the state uncertainty faced by depositors is modeled explicitly, such that bank runs arise as optimal endogenous equilibrium outcomes corresponding to Bayesian coordination games played by rational agents before depositing. Differentials in state information sets between the bank and its depositors lead to rational self-contained equilibrium runs that do not violate the revelation principle. Several numerical simulations illustrating these results are provided.