In this study,we empirically investigate why depositors perceive some banks asbeing less safe than other credit institutions. Based on case studies of depositorpanic,we find that uninformed depositors tend to judge a bank unsafe if it resemblesother recently failed institutions in a number of easily observable characteristics,many of which can be indirectly linked to the degree of diversification of the bank’sloan portfolio and capital sources.This finding implies that since banking portfoliosin developing countries and small economies are, on average,less diversified,thosecountries are more vulnerable to bank panic contagion.In addition,the governmentsof small economies would do well to institute structural policy regarding theirbanking industry designed to offset excessive vulnerability to contagion by encouragingwide foreign participation in the domestic banking.