Peck and Shell (2003) show that it is possible to get a bank run in a Diamond-Dybvig environment. The mechanism they use, however, is not an optimal one. When an optimal mechanism is used, the bank run equilibrium disappears.

A bank panic is an expectation-driven redemption event that results in a self-fulfilling prophecy of losses on demand deposits. From the standpoint of theory in the tradition of Diamond and Dybvig (1983) and Green and Lin (2003), it is surprisingly di¢ cult to generate bank panic equilibria if...