Working Paper: CEPR ID: DP17621
Authors: Viral Acharya; Abhiman Das; Nirupama Kulkarni; Prachi Mishra; Nagpurnanand Prabhala
Abstract: We study a bank run in India in which private bank branches experience sudden andconsiderable loss of deposits, which migrate to state-owned public sector banks (PSBs)that serve as safe havens. We trace the consequences of the deposit reallocation usinggranular bank-firm relationship and branch balance sheet data. The flight to safety isnot a flight to quality. Lending shrinks and credit quality improves at the run banksbut worsens at the PSBs receiving the flight-to-safety flows, especially the weakerones. The resource reallocation is inefficient in the aggregate.
Keywords: bank run; bank deposits; flight-to-safety; safe havens; credit misallocation; allocative efficiency; state-owned banks
JEL Codes: F34; G23; G28; G33; K42; O53
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| bank run (E44) | deposit losses at private banks (G21) |
| bank run (E44) | deposit gains at state-owned PSBs (G21) |
| presence of PSBs (L32) | reallocation of deposits during bank run (E44) |
| private banks facing runs (G21) | contraction in credit (E51) |
| state-owned PSBs receiving deposits (G28) | deterioration in credit quality (G33) |
| firms linked to run-exposed private banks (G21) | contraction in credit (E51) |
| firms linked to PSBs (L84) | receive more credit but of lower quality (E51) |
| greater exposure to PSBs (L32) | likelihood of runs at private banks (G21) |