Autor: Monroy-Taborda Sebastián
Institución: Pontificia Universidad Católica de Chile
JEL: G01, D31
In this paper, I examine the relationship between income inequality and bank runs. Analyzing data for 17 countries between 1880 and 2013, I find a positive (and statistically significant) correlation between income inequality and the likelihood of bank runs. I propose a banking model to explore the mechanism underpinning this correlation. This model predicts that rising inequality increases the probability of a bank run. Furthermore, I find that income inequality increases consumption allocations in equilibrium, as they depend on the aggregate level of endowment, and the bank can redistribute between depositors, leading to a higher risk in the bank’s investment portfolio.