Deposit and Credit Reallocation in a Banking Panic: The Role of State-Owned Banks

76 Pages Posted: 19 Oct 2022

See all articles by Viral V. Acharya

Viral V. Acharya

Professor; New York University - Leonard N. Stern School of Business; New York University (NYU) - Department of Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); National Bureau of Economic Research (NBER)

Abhiman Das

Indian Institute of Management Ahmedabad

Nirupama Kulkarni

CAFRAL

Prachi Mishra

International Monetary Fund (IMF) - Research Department

Nagpurnanand Prabhala

The Johns Hopkins Carey Business School

Multiple version iconThere are 2 versions of this paper

Date Written: October 7, 2022

Abstract

We study a bank run in India in which private bank branches experience sudden and considerable loss of deposits that seek safety in state-owned public sector banks (PSBs). We trace the consequences of this reallocation using granular data on bank- firm relationships and branch balance sheets. The flight to safety is not a flight to quality. Lending shrinks and credit quality improves at the run banks but worsens at the recipient PSBs. The effects are pronounced in weaker PSBs, the ones more likely to exploit the shelter of state ownership. The resource reallocation is inefficient in the aggregate.

Keywords: Bank run, state-owned banks, credit misallocation, allocative efficiency

JEL Classification: F34, G23, G28, G33, K42, O53

Suggested Citation

Acharya, Viral V. and Acharya, Viral V. and Das, Abhiman and Kulkarni, Nirupama and Mishra, Prachi and Prabhala, Nagpurnanand, Deposit and Credit Reallocation in a Banking Panic: The Role of State-Owned Banks (October 7, 2022). Available at SSRN: https://ssrn.com/abstract=4241013 or http://dx.doi.org/10.2139/ssrn.4241013

Viral V. Acharya

New York University - Leonard N. Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States
2129980354 (Phone)
2129954256 (Fax)

HOME PAGE: http://www.stern.nyu.edu/~vacharya

Professor ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States
2129980354 (Phone)
2129954256 (Fax)

HOME PAGE: http://www.stern.nyu.edu/~vacharya

New York University (NYU) - Department of Finance

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

Centre for Economic Policy Research (CEPR)

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)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Abhiman Das

Indian Institute of Management Ahmedabad ( email )

Vastraour
Ahmedabad, 380015
India

Prachi Mishra

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Nagpurnanand Prabhala

The Johns Hopkins Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States
+1 410 234 4532 (Phone)

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