Unexpected Effects of Bank Bailouts: Depositors Need Not Apply and Need Not Run

55 Pages Posted: 2 Dec 2020

See all articles by Allen N. Berger

Allen N. Berger

University of South Carolina - Darla Moore School of Business; Wharton Financial Institutions Center; European Banking Center

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 14, 2020

Abstract

A key policy issue is whether bank bailouts weaken or strengthen market discipline. We address this by analyzing how bank bailouts influence deposit quantities and prices of recipients versus other banks. Using TARP bailouts, we find both deposit quantities and prices decline, consistent with substantially reduced demand for deposits by bailed-out banks that dominate market discipline supply effects. Main findings are robust to numerous checks and endogeneity tests. However, diving deeper into depositor heterogeneity suggests nuance. Increases in uninsured deposits, transactions deposits, and deposits in banks that repaid bailout funds early suggest some temporary limited support for weakened market discipline.

Keywords: Bailouts, Banking, Depositor Behavior, Market Discipline, Bank Runs

JEL Classification: G18, G21, G28

Suggested Citation

Berger, Allen N. and Lamers, Martien and Roman, Raluca A. and Schoors, Koen J. L., Unexpected Effects of Bank Bailouts: Depositors Need Not Apply and Need Not Run (October 14, 2020). 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 )

1705 College St
Francis M. Hipp Building
Columbia, SC 29208
United States
803-576-8440 (Phone)
803-777-6876 (Fax)

Wharton Financial Institutions Center

Philadelphia, PA 19104-6367
United States

European Banking Center

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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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