Deposit and Credit Reallocation in a Banking Panic: The Role of State-Owned Banks

Viral Acharya, Abhiman Das, Nirupama Kulkarni, Prachi Mishra and Nagpurnanand Prabhala

No 17621, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We study a bank run in India in which private bank branches experience sudden and considerable loss of deposits, which migrate to state-owned public sector banks (PSBs) that serve as safe havens. We trace the consequences of the deposit reallocation using granular bank-firm relationship and branch balance sheet data. The flight to safety is not a flight to quality. Lending shrinks and credit quality improves at the run banks but worsens at the PSBs receiving the flight-to-safety flows, especially the weaker ones. The resource reallocation is inefficient in the aggregate.

Keywords: Bank; run (search for similar items in EconPapers)
JEL-codes: F34 G23 G28 G33 K42 O53 (search for similar items in EconPapers)
Date: 2022-10
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