Keep Calm and Bank on: Panic-Driven Bank Runs and the Role of Public Communication

59 Pages Posted: 5 Sep 2023 Last revised: 17 Jun 2024

See all articles by Damiano Sandri

Damiano Sandri

Bank for International Settlements (BIS); Centre for Economic Policy Research (CEPR)

Francesco Grigoli

Georgetown University

Yuriy Gorodnichenko

University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Olivier Coibion

University of Texas at Austin

Date Written: August 2023

Abstract

Using a survey with information treatments conducted in the aftermath of SVB’s collapse, we study households’ perspectives on bank stability, the potential for panic-driven bank runs, and the role of public communication. When informed about SVB’s collapse, households become more likely to withdraw deposits, due to both a higher perceived risk of bank failure and higher expected losses on deposits in case of bank failure. Leveraging hypothetical questions and the exogenous variation in beliefs generated by the information treatments, we show that households reallocate deposit withdrawals primarily into other banks and cash, with little passthrough into spending. Information about FDIC insurance and communication about bank stability by the Federal Reserve can reassure depositors, while communication from political leaders only influences their electoral base.

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Suggested Citation

Sandri, Damiano and Grigoli, Francesco and Gorodnichenko, Yuriy and Coibion, Olivier, Keep Calm and Bank on: Panic-Driven Bank Runs and the Role of Public Communication (August 2023). NBER Working Paper No. w31644, Available at SSRN: https://ssrn.com/abstract=4560571

Damiano Sandri (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Francesco Grigoli

Georgetown University ( email )

Washington, DC 20057
United States

Yuriy Gorodnichenko

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States

HOME PAGE: http://www.econ.berkeley.edu/~ygorodni/index.htm

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
United States

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Olivier Coibion

University of Texas at Austin ( email )

2317 Speedway
Austin, TX Texas 78712
United States

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