Working Paper: CEPR ID: DP18448
Authors: Damiano Sandri; Francesco Grigoli; Yuriy Gorodnichenko; Olivier Coibion
Abstract: Using a survey with information treatments conducted in the aftermath of SVB’s collapse, we study households’ perspectives on bank stability, the potential for panic-driven bank runs, and the role of public communication. When informed about SVB’s collapse, households become more likely to withdraw deposits, due to both a higher perceived risk of bank failure and higher expected losses on deposits in case of bank failure. Leveraging hypothetical questions and the exogenous variation in beliefs generated by the information treatments, we show that households reallocate deposit withdrawals primarily into other banks and cash, with little passthrough into spending. Information about FDIC insurance and communication about bank stability by the Federal Reserve can reassure depositors, while communication from political leaders only influences their electoral base.
Keywords: bank runs; public communication; information treatments
JEL Codes: E21; E58; G21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| News of the SVB collapse (G33) | Increased likelihood to withdraw deposits (G21) |
| Learning about SVB's failure (G33) | Increase in expected losses from holding bank deposits (G21) |
| Information about FDIC insurance (G28) | Decrease in expected losses on deposits (G28) |
| Federal Reserve communications (E52) | Reduces perceived likelihood of bank failure (G28) |
| Communication from President Biden (L96) | Limited effect on propensity to withdraw deposits (G21) |
| SVB collapse (G33) | Panic-driven bank runs (E44) |
| Public communication from credible sources (H12) | Mitigates panic (H12) |