Deposit Stability in Uncertain Times: Evidence from the 1918 Influenza Pandemic

38 Pages Posted: 22 Jun 2020 Last revised: 27 Nov 2023

See all articles by Haelim Anderson

Haelim Anderson

Bank Policy Institute

Jin-Wook Chang

Board of Governors of the Federal Reserve System

Adam M. Copeland

Federal Reserve Bank of New York

Multiple version iconThere are 4 versions of this paper

Date Written: November 17, 2023

Abstract

The run on Silicon Valley Bank ignited a debate about potential banking reforms, including expanding the set of deposits which are FDIC-insured. But does expanding deposit insurance necessarily increase banks’ deposit stability? We examine this question by analyzing deposit stability of NY banks during the 1918 influenza epidemic. At the time, banks accepted regular and preferred deposits, where the latter received priority in repayment during bankruptcy and was favored by institutional investors. Using a difference-in-differences approach, we estimate how the epidemic affected banks’ capital structure and asset portfolio. A main finding is that although regular deposits were not withdrawn from banks during this crisis period, institutional investors withdrew their preferred deposits from banks that were most at risk from the epidemic’s effects. Protections in bankruptcy, then, were not enough to stop institutional investors from withdrawing their deposits, a result that policymakers should consider when evaluating how different types of depositors today will value deposit insurance during times of stress.

Keywords: 1918 Influenza Pandemic, Deposit Flows, Funding Stability, Discount Window Borrowing, Bank Lending

JEL Classification: E32, G21, N22

Suggested Citation

Anderson, Haelim and Chang, Jin-Wook and Copeland, Adam M., Deposit Stability in Uncertain Times: Evidence from the 1918 Influenza Pandemic (November 17, 2023). FDIC Center for Financial Research Paper No. 2020-02, Available at SSRN: https://ssrn.com/abstract=3628572 or http://dx.doi.org/10.2139/ssrn.3628572

Haelim Anderson (Contact Author)

Bank Policy Institute ( email )

600 13th Street NW
Washington, DC 20005
United States

Jin-Wook Chang

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC DC 20551
United States
202-475-6307 (Phone)

HOME PAGE: http://sites.google.com/site/jinwookbchang/home

Adam M. Copeland

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

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