Do Depositors Monitor Banks?

Rajkamal Iyer, Manju Puri and Nicholas Ryan

No 19050, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We use unique micro-level depositor data for a bank that faced a run due to a shock to its solvency to study whether depositors monitor banks. Specifically, we examine depositor withdrawal patterns in response to a timeline of private and public signals of the bank's financial health. In response to a public announcement of the bank's financial troubles, we find depositors with uninsured balances, depositors with loan linkages and staff of the bank are far more likely to run. Even before the run, a regulatory audit, which was in principle private information, found the bank insolvent. We find that depositors act on this private information and withdraw in a pecking order beginning at the time of the regulatory audit, with staff moving first, followed by uninsured depositors and finally other depositors. By comparing the response to this fundamental shock with an earlier panic at the same bank, we argue that withdrawals in the fundamental run are due in part to monitoring by depositors though the monitoring appears to be more of regulatory signals rather than of fundamentals. Our results give sharp empirical evidence on the importance of fragility in a bank's capital structure and may inform banking regulation.

JEL-codes: G01 G2 G21 (search for similar items in EconPapers)
Date: 2013-05
New Economics Papers: this item is included in nep-ban
Note: CF ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

Downloads: (external link)
http://www.nber.org/papers/w19050.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:19050

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w19050

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().