to Mitchel’s (1941) contribution that proved bank crises occur due to
fundamental factors related to business cycle, building on the traditional view
on what causes bank runs, Jacklin and Bhattacharya (1988) believe that bank runs are
naturally grown from fluctuations in the business cycle curves. Such an attempt
interpreted bank crises as an outcome of sufficient data that indicates
negative economic performance, rather than a random event. Various researchers
anticipated bank crises and related them to a downturn within the economy,
through which depositors tend to withdraw their funds suddenly out of the
belief that banks could not be able to fulfill their commitments.
The Calomiris and
Mason’s (2003) model explores the failure of individual banks during the Great
Depression and argues it was because of fundamental factors and exogenous
local, regional, and national economic shocks. In the context, of the previous
model, a bank’s failure is caused by reasons other than the spread of panic,
for example a nationwide decline of banking activities.
The Chari and Jagannathan (1988) model has revealed that
bank crises transpire when depositors receive negative signals about the future
of banks liquidity and when the liquidation of capital is “expensive”. In other
words, this model claims that the public announcements give bad indications
concerning the fundamental factors in the economy. Such model elaborated that
the Sunspot variables that could affect the banking system should be related to
the fundamental factors in the market. The model’s credibility is mirrored in
its relevance to real life situations, where there is a connection between
sunspot variables and fundamental factors in the economy.
Following Gorton’s (1988) footsteps, Allen
and Gale (1998) developed a model which clarified that the origins of bank
crises are related to business cycles, considering the information as the main
reason of bank runs. Despite the fact that the model claimed that bank runs are
useful as financial crisis can ensure efficiency, it did not give any empirical
evidence to support such assumption. In
a similar trial, Calomiris and Kahn (1991) tried to prove through developing a model
that in a certain situation, bank runs are beneficial for the bankers, by
showing the benefits the demandable debts provide to bankers.
According to Calomiris and Gorton’s
(1991) model, there is no evidence that supports the assumption that Sunspot
variables result in banking runs, but more that they occur due to a series of
random events. This assumption makes sense as it did not neglect the impact or
the availability of Sunspots in the market, although it stated that most of bank
failures that occurred worldwide are due to fundamentals factors. In addition,
it emphasized the ability to reduce the costs of the crisis when banks create a
partnership to ensure standing to face forthcoming panics.