Markets · 6 pages · 12 min

Why a run is about who believes they are last

A bank run is a rush to withdraw by people who fear that waiting will find the cash gone.

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From the opening

A run is a rush of withdrawals that feeds on itself, because cash and liquid assets cannot pay every deposit at once even when the loans are sound. Each depositor who believes others will take cash now has a reason to go first, since being last can mean standing at an empty till. The opening covers first in line are paid, last in line may not be, and beliefs make the rush feed.

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Inside

First in line are paid
Last in line may not be
Beliefs make the rush feed
Illiquid assets back demandable claims
Where the idea stops applying
A distinction worth keeping

Sources

Diamond-Dybvig bank-run model
Sequential service of deposit claims

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Why a run is about who believes they are last

From the opening

Inside

Sources

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