On the Existence of Equilibrium Bank Runs in a Diamond-Dybvig Environment∗

In a version of the Diamond and Dybvig [6] model with aggregate uncertainty, we show that there exists an equilibrium with the fol-lowing properties: all consumers deposit at the bank, all patient con-sumers wait for the last period to withdraw, and the bank fails with strictly positive probability. Furthermore, we show that the probabil-ity 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 consumers poorly informed about the true state of nature, a sequen-tial service constraint, an infinite marginal utility of consumption at zero, and without consumers ’ panic and sunspots. We therefore think that aggregate risk in Diamond-Dybvig-like environments can be an important element to explain bank runs. ∗This paper has circulated under the title “Bank Runs without Consumers ’ Panic”. Special thanks are due to Patrick Leoni, who co-authored an early paper on this topic. I would also like to thank Bernardino Adão, Pedro Amaral, Alexandre Baptista, Alek-sander Berentsen, Saltuk Ozerturk, Erwan Quintin, João Rosal, Karl Shell, and seminar participants at Southern Methodist University and Universität Basel for their comments. I thank also John Huffstot for editorial assistance. Any errors are mine. 1