Investor Attention to Bank Risk During the Spring 2023 Bank Run

Natalia Fischl-Lanzoni (), Martin Hiti, Nathan Kaplan and Asani Sarkar
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Natalia Fischl-Lanzoni: https://futuretech.mit.edu/team/natalia-fischl-lanzoni

No 1095, Staff Reports from Federal Reserve Bank of New York

Abstract: We examine how investors’ perceptions of bank balance sheet risk evolved before and during the bank run in March-April 2023. To do so, we estimate the covariance (“beta”) of bank excess stock returns with returns on factors constructed from long-short portfolios sorted on shares of uninsured deposits and unrealized losses on securities. We find that investor perception of bank risk shifted, as the factor betas are insignificant before the bank run but become positive and significant during the run. In the crosssection, increases in the betas occurred for a limited set of banks and cannot be predicted by balance sheet risk in Q3 or Q4 of 2022. Instead, we find evidence that published bank news coordinated investor actions: they are informative to stock investors and significantly affect factor betas during the bank run, even three days after publication. In particular, for banks downgraded by rating agencies during the run, news arrivals increased (decreased) the share of factor betas that responded positively (negatively) to news. These results suggest that stock market investors have limited ability to discipline banks in a timely fashion during a bank run.

Keywords: bank run; information sensitivity; limited attention; balance sheet beta; uninsured deposits; unrealized losses (search for similar items in EconPapers)
JEL-codes: G01 G12 G14 G21 (search for similar items in EconPapers)
Pages: 77
Date: 2024-04-01
New Economics Papers: this item is included in nep-ban and nep-rmg
Note: Revised March 2025.
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DOI: 10.59576/sr.1095

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