Can Banks Placate Knowledgeable Depositors by Offering Higher Interest Rates During a Banking Crisis?

Glenn Boyle (), Roger D. Stover, Amrit Tiwana and Oleksandr Zhylyevskyy

ISU General Staff Papers from Iowa State University, Department of Economics

Abstract: Using a conjoint analysis of 417 finance professionals from six countries, we find no evidence that higher interest rates cause knowledgeable depositors to moderate their withdrawals during a banking crisis. In fact, intended withdrawals are positively correlated with expected interest rate changes. After accounting for endogeneity, this relationship disappears, consistent with the attractiveness of higher returns being offset by increased doubts about bank solvency. The withdrawal decisions of finance professionals are also independent of their personal characteristics, but they appear to place considerable store on deposit insurance generosity and the presence of a formal insurance fund.

Date: 2018-04-20
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Working Paper: Can Banks Placate Knowledgeable Depositors by Offering Higher Interest Rates During a Banking Crisis? (2018)
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