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Jan Libich

has completed his PhD at the University of New South Wales in Sydney. His research focuses on monetary and fiscal policy, the financial and banking system, game theory and sports economics. Over the past decade he has published 25 papers in academic journals including European Journal of Political Economy, Macroeconomic Dynamics, Journal of Sports Economics, Journal of Economic Surveys and Economics Letters.
Jan’s one-hour video interviews with esteemed central bankers, politicians and academic economists can be viewed at www.youtube.com/c/JanLibich.

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Jan Libich, Dat Thanh Nguyen: Running Out of Bank Runs

People tend to change their mind upon observing what others do. This paper offers a way of modeling this feature, and applies it to banking crises. The game-theoretic framework allows depositors to (probabilistically) revise their decision about running on their bank. Specifically, depositors can join or leave the crowd in front of the bank, based on observing whether others are a part of this crowd. Each depositor may have a different probability of being able to change their mind, and this probability can be observed ex-ante by the other depositors. Depositors with a lower revision probability (e.g. due to holding term deposits rather than current deposits) become leaders in the game - in an expectational sense. We show how such `Stochastic leadership' affects the occurrence of bank runs; both with and without deposit insurance. In particular, Stochastic leadership offers the depositors a coordination device and it may thus alleviate self-fulfilling bank runs without the need for government deposit insurance. Our results are consistent with the experimental evidence on the importance of observing other depositors' characteristics and decisions. We conclude by discussing the policy implications of our findings.

Last modified: 2018.11.30.