Information, Deposit Insurance Dampen Bank Runs, NYU and Federal Reserve Economists Find in Experimental Study

The more information banks’ depositors have about an economic crisis, the less likely they are to make a run on their deposits in those banks, according to an experimental study by economists at New York University and the Federal Reserve Bank of New York. Their results also showed that the presence of “insiders”-those who know the quality of the bank-and the availability of deposit insurance, even if limited, can significantly mitigate the severity of bank runs. The study, “On the Dynamics and Severity of Bank Runs,” appears in the Journal of Financial Intermediation.

The study was co-authored by New York University’s Andrew Schotter, a professor of economics and director NYU’s Center for Experimental Social Science, and Tanju Yorulmazer, an economist at the Federal Reserve Bank of New York.

“The 2007 bank run on Northern Rock in the U.K., the first bank run in the U.K. since the collapse of the City of Glasgow Bank in 1878, once again showed that crises and bank runs are an important feature of our fi 500

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