Working Paper: NBER ID: w30557
Authors: Viral V. Acharya; Abhiman Das; Nirupama Kulkarni; Prachi Mishra; Nagpurnanand R. Prabhala
Abstract: We study a bank run in India in which private bank branches experience sudden and considerable 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 using granular bank-firm relationship and branch balance sheet data. The flight to safety is not a flight to quality. Lending shrinks and credit quality improves at the run banks but worsens at the PSBs receiving the flight-to-safety flows, especially the weaker ones. The resource reallocation is inefficient in the aggregate.
Keywords: banking panic; state-owned banks; credit reallocation; financial stability
JEL Codes: G23; G28; G33; O43
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Banking panic in India (F65) | Loss of deposits at private banks (G21) |
| Banking panic in India (F65) | Gain of deposits at PSBs (G21) |
| Loss of deposits at private banks (G21) | Contraction in lending at private banks (G21) |
| Gain of deposits at PSBs (G21) | Deterioration of credit quality at PSBs (G21) |
| Loss of deposits at private banks (G21) | Improvement of credit quality at private banks (G21) |
| Banking panic in India (F65) | Misallocation of resources in the banking system (F65) |
| Presence of PSBs as safe havens (G28) | Inefficiencies in the banking system (G21) |
| Deposit reallocation due to banking panic (G21) | Decline in aggregate productivity in exposed sectors (O49) |
| Banking panic in India (F65) | Impairment of overall productivity growth in the economy (O49) |