Unexpected Effects of Bank Bailouts:Depositors Need Not Apply and Need Not Run

Allen N. Berger (), Martien Lamers, Raluca Roman () and Koen Schoors

Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium from Ghent University, Faculty of Economics and Business Administration

Abstract: A key policy issue is whether bank bailouts weaken or strengthen market discipline. We address this by analyzing how bank bailouts influence deposit quantities and prices of recipients versus other banks. Using TARP bailouts, we find both deposit quantities and prices decline, consistent with substantially reduced demand for deposits by bailed-out banks that dominate market discipline supply effects. Main findings are robust to numerous checks and endogeneity tests. However, a deeper dive into depositor heterogeneity suggests nuance. Increases in uninsured deposits, transactions deposits, and deposits in banks that repaid bailout funds early suggest some limited support for weakened market discipline.

Keywords: Bailouts; Banking; Depositor Behavior; Market Discipline; Bank Runs (search for similar items in EconPapers)
JEL-codes: G18 G21 G28 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2020-10
New Economics Papers: this item is included in nep-ban and nep-cba
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Working Paper: Unexpected Effects of Bank Bailouts: Depositors Need Not Apply and Need Not Run (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:rug:rugwps:20/1005

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