Deposit Inflows and Outflows in Failing Banks: The Role of Deposit Insurance

Christopher Martin, Manju Puri and Alexander Ufier

No 24589, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Using unique, daily, account-level balances data we investigate deposit stability and the drivers of deposit outflows and inflows in a distressed bank. We observe an outflow of uninsured depositors from the bank following bad regulatory news. We find that government deposit guarantees, both regular deposit insurance and temporary deposit insurance measures, reduce the outflow of deposits. We also characterize which accounts are more stable (e.g., checking accounts and older accounts). We further provide important new evidence that, simultaneous with the run-off, gross funding inflows are large and of first-order impact — a result which is missed when looking at aggregated deposit data alone. Losses of uninsured deposits were largely offset with new insured deposits as the bank approached failure. We show our results hold more generally using a large sample of banks that faced regulatory action. Our results raise questions about depositor discipline, widely considered to be one of the key pillars of financial stability, raising the importance of other mechanisms of restricting bank risk taking, including prudent supervision.

JEL-codes: D12 G01 G21 G28 (search for similar items in EconPapers)
Date: 2018-05
New Economics Papers: this item is included in nep-ban, nep-ias and nep-rmg
Note: CF ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (39)

Downloads: (external link)
http://www.nber.org/papers/w24589.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:24589

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w24589

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 ().