Bank Runs without Consumers’ Panic∗

In a version of the Diamond and Dybvig [3] model with aggregate uncertainty, we show that there exist an equilibrium with the following properties: all consumers deposit at the bank, all patient consumers wait for the last period to withdraw and the bank fails with strictly positive probability. Furthermore, we show that the probability of a bank failure remains bounded away from zero as the number of consumers increases. We interpret such an equilibrium as reflecting a bank run, defined as an episode in which a large number of people withdraw their deposits from a bank, forcing it to fail. Our results show that we can have equilibrium bank runs with poorly informed consumers about the true state of nature, a sequential service constraint, an infinite marginal utility of consumption at zero, and without consumers’ panic and sunspots. We, thus, think that aggregate risk in Diamond-and-Dybvig-like environments can be an important element to explain bank runs. ∗Special thanks are due to Patrick Leoni, who co-authored an early paper on this topic. I would also like to thank Bernardino Adão, Alexandre Baptista, Aleksander Berentsen, João Rosal, Karl Shell and seminar participants at Universität Basel for their comments. All remaining errors are mine.