Bank Crises and Investor Confidence
Networks Financial Institute Working Paper No. 2009-WP-01
33 Pages Posted: 7 Dec 2008 Last revised: 4 Aug 2009
Date Written: February 2009
In addition to their direct effects, episodes of financial instability may decrease investor confidence. Measuring the impact of a crisis on investor confidence is complicated by the fact that it is difficult to disentangle the effects on investor confidence from coincident direct effects of the crisis. In order to isolate the effects of financial crises on investor confidence, we study the investment behavior of immigrants in the U.S. Our findings indicate that systemic banking crises have important effects on investor behavior. Immigrants who have experienced a banking crisis in their countries of origin are significantly less likely to have bank accounts in the U.S. This finding is robust to including important individual controls like wealth, education, income, and age. In addition, the effect of crises is robust to controlling for a variety of country of origin characteristics, including measures of financial and economic development and specifications with country of origin fixed effects.
Keywords: systemic bank Crisis, financial crisis, investor confidence
JEL Classification: G01, G21, D03
Suggested Citation: Suggested Citation