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Banking Crises, Bail-ins and Money Holdings

Martin Brown (), Ioanna Evangelou () and Helmut Stix ()
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Martin Brown: University of St.Gallen
Ioanna Evangelou: Central Bank of Cyprus

No 2017-2, Working Papers from Central Bank of Cyprus

Abstract: We study changes in deposit and cash holdings by households following the 2013 banking crisis in Cyprus. During this crisis the two largest banks in the country were resolved involving a bail-in of uninsured depositors and debt holders. Our analysis is based on anonymized survey data covering households with differential exposures to the resolved banks: uninsured deposits, subordinated debt and equity holdings. In line with the portfolio theory of money demand, we find that in the intermediate aftermath of the crisis households significantly reduced their holding of bank deposits and increased their cash holdings. This flight to cash was much stronger for clients which experienced a bail-in of deposits or subordinated debt than for households which held equity in the resolved banks or did not suffer any financial loss. In the medium term, however, there was no difference in depositor confidence or money holdings between households which suffered a bail-in and those which did not.

Keywords: Financial crises; bank resolution; bail-in; deposits; cash; money demand. (search for similar items in EconPapers)
JEL-codes: E41 G01 G11 G21 G28 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mac and nep-mon
Date: 2017-11
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