How Did Depositors Respond to COVID-19?
A crisis of banks as liquidity providers
Ross Levine (rosslevine@stanford.edu),
Chen Lin,
Mingzhu Tai and
Wensi Xie
The Review of Financial Studies, 2021, vol. 34, issue 11, 5438-5473
Abstract:
Why did banks experience massive deposit inflows during the pandemic? We discover that deposit interest rates at bank branches in counties with higher COVID-19 infection rates fell by more than rates at branches—even branches of the same bank—in counties with lower infection rates. Credit drawdowns, national policies, such as the Payment Protection Program, and a flight-to-safety do not account for these cross-branch changes in deposit rates. Evidence suggests that higher local COVID-19 infection rates are associated with households’ greater anxiety about future job and income losses, anxiety that induces households to reduce spending and increase deposits.
JEL-codes: D14 G21 G50 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (31)
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