Flight to Safety in the Regional Bank Stress of 2023

Abstract

Using confidential data on deposits at U.S. banks, we document a flight to safety by depositors to large banks in early 2023. In weeks of heightened stress, large banks experienced faster deposit growth than small and regional banks without raising deposit rates. Large banks’ deposit growth rates exceeded other banks’ even after accounting for characteristics associated with failures, including uninsured deposit funding and unrealized mark-to-market losses. Monthly data show that uninsured deposits rose faster at GSIBs relative to large non-GSIBs, but insured deposits grew slower. While retail and small business depositors also flew to safety, nonfinancial
corporations reacted more strongly.

Keywords: Bank deposits, bank runs, bank failures, interest rates, flight to safety

JEL Classification: G21, G28, G01