Leiden University Student Repository

Bisti, Gabriel (2025)

Review of the Diamond-Dybvig Model for Bank Runs, including its Extensions and Applications

Master thesis | Mathematics (MSc)

Banks play a vital role in the stability and economy of the financial world. While these entities are often highly regulated, they are still subject to a phenomenon known as a bank run, even in the modern world. An example of this is the Silicon Valley Bank crisis in March of 2023, proving that there is still a place for bank run models. The Diamond-Dybvig Model is a Nobel Prize-winning economic model that simulates the environment required for a run and explores how banks function as intermediaries that create liquid claims against illiquid assets. This paper aims to give an overview of the original model from Diamond and Dybvig, then explore some criticisms and extensions of the model from Ross and Cooper while synthesizing additional sources. Finally, the paper will look into the collapse of Silicon Valley Bank and attempt to answer if the Diamond-Dybvig model can explain what went wrong.

Finance

Bank runs

applied

Diamond and Dybvig

Author

Bisti, Gabriel

Faculty

Faculty of Science

Specialisation

Business Studies

Supervisors

Spieksma, F.M.
Kanavetas, O.

ECTS Credits

20

Language

en