Working Paper: NBER ID: w24589
Authors: Christopher Martin; Manju Puri; Alexander Ufier
Abstract: Using unique, daily, account-level balances data we investigate deposit stability and the drivers of deposit outflows and inflows in a distressed bank. We observe an outflow of uninsured depositors from the bank following bad regulatory news. We find that government deposit guarantees, both regular deposit insurance and temporary deposit insurance measures, reduce the outflow of deposits. We also characterize which accounts are more stable (e.g., checking accounts and older accounts). We further provide important new evidence that, simultaneous with the run-off, gross funding inflows are large and of first-order impact — a result which is missed when looking at aggregated deposit data alone. Losses of uninsured deposits were largely offset with new insured deposits as the bank approached failure. We show our results hold more generally using a large sample of banks that faced regulatory action. Our results raise questions about depositor discipline, widely considered to be one of the key pillars of financial stability, raising the importance of other mechanisms of restricting bank risk taking, including prudent supervision.
Keywords: Deposit Insurance; Bank Stability; Depositor Behavior; Liquidity Regulation
JEL Codes: D12; G01; G21; G28
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| account characteristics (M41) | depositor behavior (D14) |
| term deposits (E43) | risk sensitivity (D81) |
| uninsured depositors (G28) | withdrawal of insured funds during stress (G28) |
| deposit insurance (G28) | new insured deposits (G28) |
| deposit insurance (G28) | funding stability (I22) |
| FDIC insurance (G28) | deposit stability (G21) |
| regulatory actions (G18) | outflow of uninsured depositors (G28) |
| FDIC insurance (G28) | outflow of deposits (F65) |
| temporary measures (TAG) (F38) | outflow of deposits (F65) |