Deposit Inflows and Outflows in Failing Banks: The Role of Deposit Insurance

52 Pages Posted: 16 May 2018

See all articles by Christopher Martin

Christopher Martin

Federal Deposit Insurance Corporation (FDIC)

Manju Puri

Duke University - Fuqua School of Business; NBER; FDIC

Alex Ufier

FDIC Center for Financial Research

Multiple version iconThere are 2 versions of this paper

Date Written: May 1, 2018

Abstract

Using unique, daily, account-level balances data we investigate deposit stability and the drivers of deposit outflows and inflows in a distressed bank. We observe an outflow (run-off) of uninsured depositors from the bank following bad regulatory news. We find that government deposit guarantees, both regular deposit insurance and temporary deposit insurance measures, reduce the outflow of deposits. We also characterize which accounts are more stable (e.g., checking accounts and older accounts). We further provide important new evidence that, simultaneous with the run-off, gross funding inflows (run-in) are large and of first-order impact — a result which is missed when looking at aggregated deposit data alone. Losses of uninsured deposits were largely offset with new insured deposits as the bank approached failure. We show our results hold more generally using a large sample of banks that faced regulatory action. Our results raise questions about depositor discipline, widely considered to be one of the key pillars of financial stability, raising the importance of other mechanisms of restricting bank risk taking, including prudent supervision.

Keywords: deposit insurance, deposit inflows, funding stability, depositor discipline, banks, bank runs

JEL Classification: G21, G28, D12, G01

Suggested Citation

Martin, Christopher and Puri, Manju and Ufier, Alexander, Deposit Inflows and Outflows in Failing Banks: The Role of Deposit Insurance (May 1, 2018). Available at SSRN: https://ssrn.com/abstract=3172256 or http://dx.doi.org/10.2139/ssrn.3172256

Christopher Martin

Federal Deposit Insurance Corporation (FDIC) ( email )

550 17th Street NW
Washington, DC 20429
United States

HOME PAGE: http://sites.google.com/site/chrismartin122/

Manju Puri (Contact Author)

Duke University - Fuqua School of Business ( email )

100 Fuqua Drive
Box 90120
Durham, NC 27708-0120
United States
919-660-7657 (Phone)

NBER

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

FDIC ( email )

550 17th Street NW
Washington, DC 20429
United States

Alexander Ufier

FDIC Center for Financial Research ( email )

550 Seventeenth Street, NW
Washington, DC 20057
United States
6104703539 (Phone)

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