Interest rates and bank runs

We study how high short-term interest rates affect depositor withdrawals and bank fragility. In a global games model, depositors choose between bank deposits and money market funds, while bank holds short-term and long-term assets. Higher rates raise the payoff from withdrawing and reduce long-term asset recovery values. The model delivers a critical interest rate threshold above which runs occur, conditional on bank balance-sheet fundamentals. Lower switching cost, weaker long-term asset returns, larger fire-sale loss, and larger long-term asset share lower the threshold and expand the run region.