Download This PaperDeposit and Credit Reallocation in a Banking Panic: The Role of State-Owned Banks
71 Pages Posted: 19 Oct 2022 Last revised: 28 Aug 2023
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Deposit and Credit Reallocation in a Banking Panic: The Role of State-Owned Banks
Deposit and Credit Reallocation in a Banking Panic: The Role of State-Owned Banks
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: Suggested Citation
Viral V. Acharya
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New York University (NYU) - Department of Finance ( email )
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Nagpurnanand Prabhala
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