Do Small Bank Deposits Run More than Large Ones? Three Event Studies of Contagion and Financial Inclusion

32 Pages Posted: 22 May 2018

See all articles by Dante Canlas

Dante Canlas

University of the Philippines

Johnny Noe RAVALO

Government of the Republic of the Philippines - Central Bank of the Philippines-Bangko Sentral ng Pilipinas

Eli M. Remolona

Bank for International Settlements (BIS) - Monetary and Economic Department

Date Written: May 16, 2018

Abstract

How susceptible to contagion are bank deposits associated with financial inclusion? To shed light on this question, we analyze the behavior of deposits of different account sizes around three significant bank closures in the Philippines. When we look at the three events by applying difference-in-difference regressions to a dataset that distinguishes between small and large deposits at the town level, we find no evidence that the closure of a large bank leads to withdrawals by depositors at other banks nearby, whether the deposits are large or small. For two of the events, we do find some evidence that depositors, both large and small, anticipate that their bank is about to fail, and they start to withdraw before the bank is closed. With more comprehensive branch-level data for one of the events, we find that the bank closure does lead to reduced deposits at bank branches nearby. All this suggests that, while a bank failure can lead to contagion, the behavior of small depositors is no different from that of large depositors, and thus financial inclusion is unlikely to add to financial instability.

Keywords: Financial inclusion, financial stability, contagion, bank run, event study, selection bias

JEL Classification: G21, G28, C21, O35

Suggested Citation

Canlas, Dante and RAVALO, Johnny Noe and Remolona, Eli M., Do Small Bank Deposits Run More than Large Ones? Three Event Studies of Contagion and Financial Inclusion (May 16, 2018). BIS Working Paper No. 724, Available at SSRN: https://ssrn.com/abstract=3179498

Dante Canlas

University of the Philippines

Diliman
Quezon City, 1101
Philippines

Johnny Noe RAVALO

Government of the Republic of the Philippines - Central Bank of the Philippines-Bangko Sentral ng Pilipinas ( email )

Philippines 1004
United States

Eli M. Remolona (Contact Author)

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

IFC 2 Bldg, 78/F
Central
Hong Kong
Hong Kong
+852 2982 7150 (Phone)
+852 2982 7123 (Fax)

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