Working Paper: CEPR ID: DP18107
Authors: Guillaume Vuillemey
Abstract: I show that saving gluts spur financial instability. In the US, banks locally exposed to its root causes -- the rise in household wealth inequality and higher savings by intangible-intensive firms -- massively increased deposits since 2000, leading to an unprecedented deposit-to-GDP ratio and to a large increase in uninsured deposits. To causally identify an impact of the saving glut on financial instability, I rely on the unexpected failure of Silicon Valley Bank in March 2023: other US banks with higher local exposure to either wealth inequality or intangible-intensive firms experienced significantly larger drops in stock prices.
Keywords: deposits; global saving glut; wealth inequality; intangibles
JEL Codes: G21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| saving gluts driven by rising household wealth inequality and increased savings by intangible-intensive firms (E21) | financial instability in US banks (F65) |
| higher local exposure to wealth inequality and intangible-intensive firms (R12) | larger declines in stock prices post-SVB failure (G24) |
| banks with above-median ratios of uninsured deposits (G28) | lost an additional 30 percentage points in market value compared to those below the median (G19) |
| exposure to corporate intangibles (O34) | explains as much heterogeneity in stock returns as uninsured deposits (G59) |
| SVB failure (G33) | financial instability in US banks (F65) |