Vecon Lab Bank Run Experiment: Introduction

This program sets up an investment game in which each depositor chooses whether or not to withdraw cash from a financial institution. If withdrawals exceed the bank's cash reserves, the bank fails and earnings for those who have not withdrawn at that point are diminished. Those who withdraw prior to a failure will receive their deposits. If the bank does not fail, those who do not withdraw receive a return payoff that exceeds the initial deposit. There are both bank-run equilibria and non-bank-run equilibria. The chances of a bank run can be affected by return parameters, bank cash reserves, and deposit insurance.

Key Concepts:
Bank Runs
Liquidity
Financial Crisis
Efficiency

Vecon Lab - March 28, 2024