Supply and Demand Effects of Bank Bailouts: Depositors Need Not Apply and Need Not Run

Journal of Money, Credit, and Banking (JMCB), Forthcoming

61 Pages Posted: 2 Dec 2020 Last revised: 31 Oct 2022

See all articles by Allen N. Berger

Allen N. Berger

University of South Carolina - Darla Moore School of Business

Martien Lamers

Ghent University - Faculty of Economics and Business Administration

Raluca A. Roman

Federal Reserve Bank of Philadelphia

Koen J. L. Schoors

Ghent University - Centre for Russian International Socio-Political and Economic Studies (CERISE); Ghent University - Department of General Economics

Date Written: October 30, 2022

Abstract

We address two key issues concerning bank bailout effects on depositor and bank behavior. The first is whether bailouts weaken or strengthen market discipline by depositors through deposit supplies. The second is if bailed-out banks decrease or increase their deposit demands. These questions can only be adequately addressed by analyzing the effects of bailouts on both deposit quantities and prices. We do so for the Troubled Asset Relief Program (TARP) bailouts. Overall, we find demand changes empirically dominate supply changes, and suggest significantly reduced deposit demand from bailouts. In some cases, however supply changes dominate, and indicate weakened market discipline.

Keywords: Bailouts, Financial Crises, Global Financial Crisis, Market Discipline, Depositor Behavior, Bank Runs, Bank Deposit Funding.

JEL Classification: G01; G18; G14; G21; H81.

Suggested Citation

Berger, Allen N. and Lamers, Martien and Roman, Raluca A. and Schoors, Koen J. L., Supply and Demand Effects of Bank Bailouts: Depositors Need Not Apply and Need Not Run (October 30, 2022). Journal of Money, Credit, and Banking (JMCB), Forthcoming, Available at SSRN: https://ssrn.com/abstract=3712641 or http://dx.doi.org/10.2139/ssrn.3712641

Allen N. Berger

University of South Carolina - Darla Moore School of Business ( email )

1014 Greene St.
Columbia, SC 29208
United States
803-576-8440 (Phone)
803-777-6876 (Fax)

Martien Lamers (Contact Author)

Ghent University - Faculty of Economics and Business Administration ( email )

Ghent, B-9000
Belgium

Raluca A. Roman

Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

Koen J. L. Schoors

Ghent University - Centre for Russian International Socio-Political and Economic Studies (CERISE) ( email )

Tweekerkenstraat 2
Ghent, 9000
Belgium
+32 9 264 34 78 (Phone)
+32 9 265 35 99 (Fax)

Ghent University - Department of General Economics ( email )

Tweekerkenstraat 2
Ghent, 9000
Belgium
+32 9 264 34 78 (Phone)
+32 9 264 35 99 (Fax)

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