Runs to Bank: The Role of Sweep Banking Deposits During Market Downturns

56 Pages Posted: 22 Mar 2021 Last revised: 23 Mar 2021

See all articles by James R. Barth

James R. Barth

Auburn University; Milken Institute

Mark L. Mitchell

University of Chicago - Booth School of Business; AQR Capital Management, LLC; CNH Partners

Yanfei Sun

Ryerson University

Date Written: March 9, 2021

Abstract

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

Barth, James R. and Mitchell, Mark L. and Sun, Yanfei, Runs to Bank: The Role of Sweep Banking Deposits During Market Downturns (March 9, 2021). Available at SSRN: https://ssrn.com/abstract=3809322 or http://dx.doi.org/10.2139/ssrn.3809322

James R. Barth

Auburn University ( email )

415 West Magnolia Avenue
Auburn, AL 36849
United States
334-844-2469 (Phone)
334-844-4960 (Fax)

Milken Institute ( email )

1250 Fourth Street
Santa Monica, CA 90401
United States

Mark L. Mitchell (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S Woodlawn Ave
Chicago, IL 60637
United States

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

CNH Partners ( email )

One Greenwich Plaza
2nd Floor
Greenwich, CT 06830
United States
(203) 742-3001 (Phone)

Yanfei Sun

Ryerson University

350 Victoria Street
Toronto, Ontario M5B 2K3
Canada

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
22
Abstract Views
140
PlumX Metrics