The Dynamics of Deposit Flightiness and its Impact on Financial Stability

Kristian Blickle, Jian Li, Xu Lu and Yiming Ma

No 34128, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We document that deposit flightiness varies significantly over time, peaking after Covid-19. Elevated deposit flightiness coincides with QE and low interest rates. We rationalize these trends based on heterogeneity in investors’ convenience value. Investors in the banking system value the convenience benefits of deposits more than outside investors. Following deposit inflows, e.g., due to QE's reserve expansions, the marginal depositor in the banking system becomes less convenience seeking and the risk of panic runs increases. As a result, policy rate hikes are more destabilizing when preceded by QE. Our findings reveal a novel linkage between conventional and unconventional monetary policy.

JEL-codes: E5 E50 G2 G21 G23 (search for similar items in EconPapers)
Date: 2025-08
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