Banking Crises, Bail-Ins and Money Holdings

Central Bank of Cyprus Working Paper No. 2017-2

58 Pages Posted: 24 Jan 2018

See all articles by Martin Brown

Martin Brown

University of St. Gallen

Ioanna Evangelou

Central Bank of Cyprus

Helmut Stix

Oesterreichische Nationalbank - Economic Studies Division

Date Written: January 16, 2018

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, we find no difference in depositor confidence or intended 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

JEL Classification: E41, G01, G11, G21, G28

Suggested Citation

Brown, Martin and Evangelou, Ioanna and Stix, Helmut, Banking Crises, Bail-Ins and Money Holdings (January 16, 2018). Central Bank of Cyprus Working Paper No. 2017-2. Available at SSRN: https://ssrn.com/abstract=3102815 or http://dx.doi.org/10.2139/ssrn.3102815

Martin Brown (Contact Author)

University of St. Gallen ( email )

Unterer Graben 21
St. Gallen, CH-9000
Switzerland

Ioanna Evangelou

Central Bank of Cyprus ( email )

80 Kennedy Ave
1076 Nicosia
Cyprus

Helmut Stix

Oesterreichische Nationalbank - Economic Studies Division ( email )

Otto-Wagner Platz 3
POB 61
Vienna 1011
Austria

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