One Size Doesn't Fit All: Heterogeneous Depositor Compensation During Periods of Uncertainty

59 Pages Posted: 12 Aug 2022

See all articles by Nikolaos T. Artavanis

Nikolaos T. Artavanis

Louisiana State University, Baton Rouge - Department of Finance

Daniel Paravisini

London School of Economics & Political Science (LSE)

Claudia Robles-Garcia

Stanford Graduate School of Business

Amit Seru

Stanford University

Margarita Tsoutsoura

Washington University in Saint Louis, John M. Olin Business School

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Date Written: August 8, 2022

Abstract

We develop a new approach to identify different categories of depositors during periods of uncertainty and quantify their compensation to remain in the bank. We isolate withdrawals due to liquidity needs, deterioration of fundamentals, and expectation about withdrawal behavior of other depositors. We exploit variation in the cost of withdrawal induced by the maturity expiration of time deposits around unexpected uncertainty events and high-frequency microdata from a large Greek bank. Deposit withdrawals quadrupled in response to a policy uncertainty shock that doubled the short-run credit default swap (CDS) price of Greek sovereign bonds. About two-thirds of this increase is driven by direct exposure to deteriorating fundamentals, and the remainder due to strategic complementarities. We find that depositors need to be offered annualized returns exceeding 50% to remain in the bank during episodes of high uncertainty. Our findings provide new insights into the design of interventions that prevent runs by targeting depositors with the largest propensity to withdraw.

Keywords: depositor withdrawals, policy uncertainty, time deposits, bank runs.

JEL Classification: D12, D81, G21, O16.

Suggested Citation

Artavanis, Nikolaos T. and Paravisini, Daniel and Robles-Garcia, Claudia and Seru, Amit and Tsoutsoura, Margarita, One Size Doesn't Fit All: Heterogeneous Depositor Compensation During Periods of Uncertainty (August 8, 2022). Available at SSRN: https://ssrn.com/abstract=4185095 or http://dx.doi.org/10.2139/ssrn.4185095

Nikolaos T. Artavanis

Louisiana State University, Baton Rouge - Department of Finance ( email )

2900 BEC
Baton Rouge, LA 70803
United States

Daniel Paravisini

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Claudia Robles-Garcia

Stanford Graduate School of Business

655 Knight Way
Stanford, CA 94305-5015
United States

Amit Seru (Contact Author)

Stanford University ( email )

Stanford, CA 94305
United States

Margarita Tsoutsoura

Washington University in Saint Louis, John M. Olin Business School ( email )

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