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Deposit Withdrawals from Distressed Commercial Banks

Benjamin Guin, Martin Brown () and Stefan Morkötter
Authors registered in the RePEc Author Service: Stefan Morkoetter

Annual Conference 2015 (Muenster): Economic Development - Theory and Policy from Verein für Socialpolitik / German Economic Association

Abstract: We study retail deposit withdrawals from European commercial banks which incurred investment losses in the wake of the U.S. subprime crisis. We document a strong propensity of households to withdraw deposits from distressed banks, especially when a bank receives a public bailout. However, the withdrawal risk for a distressed bank is mitigated by strong bank-client relationships and household-level switching costs: Households which rely on a single deposit account, which do not live close to a non-distressed bank, or which maintain a credit relationship with a distressed bank are significantly less likely to withdraw deposits. Our findings provide empirical support to the Basel III liquidity regulations which emphasize the role of well-established client relationships for the stability of bank funding.

JEL-codes: D14 G21 G28 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-ban and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc15:113081

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