Runs to Bank: The Role of Sweep Banking Deposits During Market Downturns
56 Pages Posted: 22 Mar 2021 Last revised: 23 Mar 2021
Date Written: March 9, 2021
Sweep deposits from brokerage firms to banks vary inversely with the stock market. When the stock market declines, retail investors reduce risk and sell stocks, with the proceeds typically swept out of brokerage firms and into banks. The relation is asymmetric as sweep deposits do not appear to respond to positive movements in the stock market. Overall, sweep deposits are a primary driver backing the same asymmetric relation between domestic bank deposits and the stock market, and are not destabilizing, but instead stabilizing for banks as households reduce risk by converting stock to cash during periods of high stress.
Keywords: brokerage firms, sweep deposits, bank deposits, market crashes
JEL Classification: G21, G01, G11, G24
Suggested Citation: Suggested Citation