Working Paper: NBER ID: w31462
Authors: Efraim Benmelech; Jun Yang; Michal Zator
Abstract: Bank branch density, defined as the number of bank branches to total deposits, has significantly declined over the past decade, fueled by a confluence of branch closings and the almost doubling of deposits between 2016 and 2022. During this period, banks with low branch density benefited from large deposits inflows, leading to even lower density. But the virtuous cycle of deposits growth in these banks stopped spinning when investors became wary about their financial health. Stock prices of banks with low branch density plummeted during the 2023 Banking Crisis as these banks experienced larger outflows of uninsured deposits. Our results suggest that digital banking enabled banks to grow faster and attract uninsured deposits, but those large deposits inflows took the form of “hot money” that changed its course when economic conditions worsened.
Keywords: bank branch density; bank runs; digital banking; deposit stability; stock performance
JEL Codes: E44; E52; G20; G21; G28
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| branch density (Y80) | stock returns (G12) |
| branch density (Y80) | deposit outflows (F21) |