Working Paper: NBER ID: w27964
Authors: Ross Levine; Chen Lin; Mingzhu Tai; Wensi Xie
Abstract: Why did banks experience massive deposit inflows during the first months of the pandemic? Using weekly branch-level data on interest rates and county-level data on COVID-19 cases, we discover that interest rates at bank branches in counties with higher COVID-19 infection rates fell by more than rates at other branches—even branches of the same bank in different counties. When differentiating weeks by the degree of stock market distress and counties by the likely impact of COVID-19 cases on economic anxiety, the evidence suggests that the deposit inflows were triggered by a surge in the supply of precautionary savings.
Keywords: COVID-19; bank deposits; precautionary savings; interest rates
JEL Codes: D14; G21; G51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| COVID-19 infection rates (Y10) | deposit interest rates (E43) |
| counties with higher COVID-19 infection rates (R23) | counties with lower deposit interest rates (G21) |
| financial market volatility (G17) | impact of COVID-19 infection rates on deposit interest rates (E43) |
| higher levels of education (I23) | stronger rate-reducing effects of COVID-19 infection rates on deposit interest rates (E43) |
| older demographics (J14) | stronger rate-reducing effects of COVID-19 infection rates on deposit interest rates (E43) |
| stronger social capital (Z13) | less drop in deposit rates during COVID-19 (G21) |