Retaining Worried Depositors: Evidence from Multi-Brand Banks

Abstract

We develop a novel approach to study how banks respond to fluctuations in the risk of panic-driven retail deposit withdrawals. To proxy for changes in withdrawal risk, we track online information acquisition about different brands of UK banks. We find that banks facing surges in information acquisition during the global financial crisis increase interest rates on instant-access deposits. Exploiting variation in information acquisition for different brands of the same bank, we show that part of this response cannot be explained by fundamentals. Comparing similar onshore and offshore deposits offered by the same brand, we show that the effect is stronger when the absence of deposit insurance increases the potential for strategic complementarities. Our results point to a previously undocumented source of self-fulfilling bank fragility.

Keywords: Bank runs, deposit insurance, deposit withdrawals, information acquisition

JEL Classification: D81, G01, G21, G28