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 data, we investigate deposit outflows and inflows in a distressed bank. We observe an outflow of uninsured depositors following bad regulatory news. Both regular and temporary deposit insurance reduce outflows. We provide important new evidence that, simultaneous with deposit outflows, deposit inflows are first order. Uninsured deposit outflows were largely offset with new insured deposit inflows as the bank approached failure, with the bank increasing term deposit rates. This phenomenon holds in a large sample of banks that faced regulatory action, suggesting that insured deposit inflows are an important mechanism that weakens depositor discipline.

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
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Citations: View citations in EconPapers (41)

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