"The Social Determinants of Bank Runs"

Abstract

Motivated by new evidence from the 2023 U.S. regional bank crisis, I develop a theory of how depositor social structure influences bank runs. Rumors about bank financial health spread via interpersonal communication, triggering withdrawals that may lead to collapse. I show that the occurrence, speed, and scale of runs depend on depositor connectedness—the likelihood that agents know and communicate with each other. Higher connectedness accelerates information spread, making runs faster and more severe. In contrast, dispersed depositor bases slow down runs, and can even prevent them entirely.