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

53 Pages Posted: 9 Aug 2018 Last revised: 13 Aug 2018

See all articles by Christopher Martin

Christopher Martin

Federal Deposit Insurance Corporation (FDIC)

Manju Puri

Duke University - Fuqua School of Business; NBER

Alex Ufier

FDIC Center for Financial Research

Date Written: May 1, 2018


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 in flows, funding stability, depositor discipline

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). FDIC Center for Financial Research Paper No. 2018-02, Available at SSRN: or

Christopher Martin (Contact Author)

Federal Deposit Insurance Corporation (FDIC) ( email )

550 17th Street NW
Washington, DC 20429
United States


Manju Puri

Duke University - Fuqua School of Business ( email )

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


1050 Massachusetts Avenue
Cambridge, MA 02138
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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