Bank Run Contagion

August 1, 2009

Ripple effect: James Stewart witnesses bank run in It's a Wonderful Life
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Bank runs work in the same way as infectious diseases, according to new research out of the Fuqua School of Business. Analysis of social networks and their relationship to withdrawals during a run on a bank in India earlier this decade found that the symptoms of bank runs are contagious.

Manju Puri, the J.B. Fuqua Professor of finance at the business school, and co-author, Rajkamal Iyer, of the University of Amsterdam, had access to minute-by-minute data of banking transactions and the names and addresses of customers during a bank run. Researchers employed epidemiological methods to determine connections between bank depositors, using Google Earth to map their locations.

"We found that an individual customer's decision to run or not was highly correlated with whether or not their neighbors had already run from the bank," Puri says. "We found clusters of customers running who all lived in the same building or on the same street. If one person ran, many did, but in other places, no one ran at all."