Distinguishing Panics and Information-Based Bank Runs: Welfare and Policy Implications.

In this paper, the authors contrast panics and information-based bank runs in an effort to provide a robust and empirically plausib le model of how bank runs are triggered. The model of information-bas ed runs is characterized by two-sided asymmetric information: the ban k cannot observe the true liquidity needs of the depositors while dep ositors are asymmetrically informed about bank asset quality. They al so examine the relative degrees of risk sharing provided by bank depo sit contracts and traded equity contracts. They show that the choice of deposit or equity depends on the attributes of and information abo ut the underlying investment returns. Copyright 1988 by University of Chicago Press.