Which model of bank runs was published by Douglas Diamond and Philip Dybvig in 1983?

The bank-run model published by Douglas Diamond and Philip Dybvig in 1983 is the Diamond–Dybvig model.

Their paper, “Bank Runs, Deposit Insurance, and Liquidity,” explains how banks can become vulnerable because they hold relatively illiquid, long-term assets while promising depositors short-term access to their money. This arrangement provides useful liquidity and risk-sharing under normal conditions, but it can also create instability.

The model’s central insight is that a bank run can be self-fulfilling. If depositors believe others will withdraw, each depositor has an incentive to withdraw first—even when the bank’s underlying loans are sound. Diamond and Dybvig also analyzed deposit insurance and suspension of convertibility as possible ways to prevent panic.

A common mix-up is treating the model as a general theory of every financial crisis. It specifically focuses on liquidity transformation, depositor coordination, and panic-driven runs. The model became especially prominent after Diamond and Dybvig shared the 2022 Nobel Memorial Prize in Economic Sciences with Ben Bernanke for work on banks and financial crises.