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

71 Pages Posted: 19 Oct 2022 Last revised: 28 Aug 2023

See all articles by Viral V. Acharya

Viral V. Acharya

New York University (NYU) - 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: August 26, 2023

Abstract

We study a bank run in India in which private bank branches experience sudden and considerable loss of deposits, which migrate to state-owned public sector banks (PSBs) that serve as safe havens. We trace the consequences of the deposit reallocation using granular bank-firm relationship and branch balance sheet data. The flight to safety is not a flight to quality. Lending shrinks and credit quality improves at the run banks but worsens at the PSBs receiving the flight-to-safety flows, especially the weaker ones. 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 (August 26, 2023). Available at SSRN: https://ssrn.com/abstract=4241013 or http://dx.doi.org/10.2139/ssrn.4241013

Viral V. Acharya

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

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New York University (NYU) - Department of Finance ( email )

Stern School of Business
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Centre for Economic Policy Research (CEPR) ( email )

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Abhiman Das

Indian Institute of Management Ahmedabad ( email )

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Prachi Mishra

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

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Nagpurnanand Prabhala

The Johns Hopkins Carey Business School ( email )

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