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

60 Pages Posted: 22 Aug 2022 Last revised: 5 Sep 2022

See all articles by Nikolaos T. Artavanis

Nikolaos T. Artavanis

Tulane University

Daniel Paravisini

London School of Economics & Political Science (LSE)

Claudia Robles-Garcia

Stanford University

Amit Seru

Stanford University

Margarita Tsoutsoura

Washington University in Saint Louis, John M. Olin Business School; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); National Bureau of Economic Research (NBER)

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Date Written: August 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.

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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 2022). NBER Working Paper No. w30369, Available at SSRN: https://ssrn.com/abstract=4196313

Nikolaos T. Artavanis (Contact Author)

Tulane University ( email )

A.B. Freeman School of Business
7 McAlister Drive
New Orleans, LA 70118
United States

Daniel Paravisini

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

Houghton Street
London, WC2A 2AE
United Kingdom

Claudia Robles-Garcia

Stanford University ( email )

Amit Seru

Stanford University ( email )

Stanford, CA 94305
United States

Margarita Tsoutsoura

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

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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