Bank Runs and Inequality

Sebastián Monroy-Taborda
Authors registered in the RePEc Author Service: Sebastian Monroy Taborda

No 4672, Asociación Argentina de Economía Política: Working Papers from Asociación Argentina de Economía Política

Abstract: In this paper, I examine the relationship between income inequality and bank runs. Analyzing data for 17 countries between 1880 and 2013, I find a positive (and statistically significant) correlation between income inequality and the likelihood of bank runs. I propose a banking model to explore the mechanism underpinning this correlation. This model predicts that rising inequality increases the probability of a bank run. Furthermore, I find that income inequality increases consumption allocations in equilibrium, as they depend on the aggregate level of endowment, and the bank can redistribute between depositors, leading to a higher risk in the bank’s investment portfolio.

JEL-codes: D31 G01 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2023-11
New Economics Papers: this item is included in nep-ban and nep-fdg
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Persistent link: https://EconPapers.repec.org/RePEc:aep:anales:4672

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