The Dynamics of Deposit Flightiness and its Impact on Financial Stability

77 Pages Posted: 25 Jun 2024 Last revised: 16 Oct 2024

See all articles by Kristian Blickle

Kristian Blickle

Federal Reserve Banks - Federal Reserve Bank of New York

Jian Li

Columbia University - Columbia Business School, Finance

Xu Lu

University of Washington - Michael G. Foster School of Business

Yiming Ma

Columbia University - Columbia Business School

Date Written: May 31, 2024

Abstract

We find that the flightiness of depositors displays pronounced fluctuations over time, reaching unprecedentedly high levels after the Covid-19 crisis. Elevated deposit flightiness coincides with low interest rate environments, expansions in central bank reserves and a disproportionate increase in corporate deposits. Our dynamic model rationalizes these trends based on heterogeneity in investors’ convenience value, where those in the banking system value the convenience benefits of deposits more. Following deposit inflows from outside investors, e.g., due to QE’s reserve expansions, the marginal depositor becomes more rate-sensitive and the risk of panic runs increases. Our findings imply that the risk of panic runs triggered by policy rate hikes is amplified when the Fed’s balance sheet size is larger, highlighting a novel linkage between conventional and unconventional monetary policy. 

Suggested Citation

Blickle, Kristian and Li, Jian and Lu, Xu and Ma, Yiming, The Dynamics of Deposit Flightiness and its Impact on Financial Stability (May 31, 2024). Available at SSRN: https://ssrn.com/abstract=4873784 or http://dx.doi.org/10.2139/ssrn.4873784

Kristian Blickle

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Jian Li (Contact Author)

Columbia University - Columbia Business School, Finance ( email )

3022 Broadway
New York, NY 10027
United States

Xu Lu

University of Washington - Michael G. Foster School of Business ( email )

Seattle, WA 98195
United States

Yiming Ma

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

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