BANK PANICS, SUSPENSIONS, AND GEOGRAPHY: SOME NOTES ON THE “CONTAGION OF FEAR” IN BANKING

Abstract

Recent attempts to understand bank panics tend to emphasize informational asymmetries or the possibilities of multiple equilibria. Such approaches stand in contrast to historical research that emphasizes legal factors influencing the organization of the banking system. This paper constructs a model of a banking system operating under regulations similar to those in effect under the National Banking System and in which information is complete. In all other respects the model resembles that of Diamond and Dybvig [1983]. The results indicate that, given the regulatory environment, it would have been surprising if suspensions of convertibility had not recurred periodically.

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