This paper provides, for the first time, large-scale evidence that liquidity transformation by banks creates fragility, as their uninsured depositors face an incentive to withdraw their money before others (a so-called panic run). Such fragility manifests itself in stronger sensitivity of...

We provide the first large-scale evidence that liquidity transformation by banks creates fragility, as uninsured depositors face an incentive to withdraw money before others (a so-called panic run). Such fragility manifests itself in stronger sensitivity of deposit flows to bank performance. The...

One of the key roles of banks is liquidity transformation, which is also thought to create fragility, as uninsured depositors face an incentive to withdraw money before others (a so-called panic run). Despite large amount of theoretical work, there has not been much empirical evidence...