Banking and Interest Rate Risk: Deposits and the Risk of Bank Runs
Paper Session
Sunday, Jan. 5, 2025 8:00 AM - 10:00 AM (PST)
- Chair: Mark Jeffrey Flannery, University of Florida
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 tolarge 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.
A Framework for Evaluating Banks' Resilience in a Rising Interest Rate Environment
Abstract
The failure of Silicon Valley Bank (SVB) brought renewed attention to the risk to financial institutions of runs on their deposits. In this paper, we propose a framework to determine whether conditions exist for banks to experience runs. We compare the performance of our method with several alternative measures of bank fragility. Our measure is able to identify weak banks earlier and as accurately as any of the alternatives, and at much lower cost in terms of falsely identifying banks as weak. The results indicate that this metric could be used to help banks effectively manage their balance sheets to avoid creating conditions where depositors have an incentive to run.Discussant(s)
Atanas Mihov
,
University of Kansas
Mehdi Beyhaghi
,
Federal Reserve Board
Jennifer Dlugosz
,
Federal Reserve Board
JEL Classifications
- G2 - Financial Institutions and Services
- G0 - General