The Cost of Privacy Failures: Evidence from Bank Depositors’ Reactions to Breaches

49 Pages Posted: 7 Jul 2020 Last revised: 2 Dec 2021

See all articles by Christian Engels

Christian Engels

University of St Andrews - School of Management

Bill Francis

Rensselaer Polytechnic Institute (RPI) - Lally School of Management & Technology

Dennis Philip

Durham University - Department of Economics and Finance

Date Written: October 4, 2021

Abstract

We study consumers’ reactions in response to material privacy violations. Exploring privacy breach incidences of U.S. banks, where personally identifiable information (social security numbers, addresses, names) is exposed to unauthorized parties, we find that depositors reallocate significant wealth holdings away from breached banks – we note a 12% differential in total deposits growth between breached and control banks in the year following a breach of privacy. In response to the depletion in deposits, breached banks increase deposit rates just after breach incidences and draw on funding liquidity from the interbank market. The results highlight the importance of privacy for consumers.

Keywords: privacy, cyber-security, data breaches, banks, deposit institutions, depositors

JEL Classification: G21, D14, D18

Suggested Citation

Engels, Christian and Francis, Bill and Philip, Dennis, The Cost of Privacy Failures: Evidence from Bank Depositors’ Reactions to Breaches (October 4, 2021). Available at SSRN: https://ssrn.com/abstract=3625668 or http://dx.doi.org/10.2139/ssrn.3625668

Christian Engels

University of St Andrews - School of Management ( email )

The Gateway, North Haugh
St Andrews, KY16 9RJ
United Kingdom

HOME PAGE: http://https://www.st-andrews.ac.uk/management/people/ce50

Bill Francis

Rensselaer Polytechnic Institute (RPI) - Lally School of Management & Technology ( email )

110 8th St
Troy, NY 12180
United States

Dennis Philip (Contact Author)

Durham University - Department of Economics and Finance ( email )

Department of Economics and Finance
Mill Hill Lane
Durham, DH1 3LB
United Kingdom

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