Bank Crises and Investor Confidence

33 Pages Posted: 7 Dec 2008 Last revised: 4 Aug 2009

See all articles by Una Okonkwo Osili

Una Okonkwo Osili

Indiana University - Purdue University Indianapolis (IUPUI)

Anna L. Paulson

Federal Reserve Bank of Chicago

Date Written: February 2009

Abstract

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

Osili, Una Okonkwo and Paulson, Anna L., Bank Crises and Investor Confidence (February 2009). FRB of Chicago Working Paper No. 2008-17; Networks Financial Institute Working Paper No. 2009-WP-01 ; US Census Bureau Center for Economic Studies Paper No. CES-WP- 09-02. Available at SSRN: https://ssrn.com/abstract=1311475 or http://dx.doi.org/10.2139/ssrn.1311475

Una Okonkwo Osili

Indiana University - Purdue University Indianapolis (IUPUI) ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States

Anna L. Paulson (Contact Author)

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States
312 322 2169 (Phone)

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