2016/12/27 by Mark Egan, Ali Hortaçsu, Alı Hortaçsu +1 · 420 citations
Economics, Econometrics and Finance · #Bank failure #Bank run #Banking stability, regulation, efficiency #Capital (architecture) #Capital requirement #Competition (biology) #Deposit insurance #Economic Theory and Policy #Economic theories and models #Economics #Empirical evidence #Finance #Financial crisis #Financial distress #Financial fragility #Financial system #Fragility #Macroeconomics #Market liquidity #Microeconomics #Monetary economics
paper · open access · doi:10.1257/aer.20150342
published in American Economic Review 107(1), 169-216 (American Economic Association)
openalex publication_date 2016/12/27 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/25
We develop a structural empirical model of the US banking sector. Insured depositors and run-prone uninsured depositors choose between differentiated banks. Banks compete for deposits and endogenously default. The estimated demand for uninsured deposits declines with banks' financial distress, which is not the case for insured deposits. We calibrate the supply side of the model. The calibrated model possesses multiple equilibria with bank-run features, suggesting that banks can be very fragile. We use our model to analyze proposed bank regulations. For example, our results suggest that a capital requirement below 18 percent can lead to significant instability in the banking system. (JEL E44, G01, G21, G28, G32)