Thomas Eisenbach, Federal Reserve Bank of New York
Anna Kovner, Federal Reserve Bank of Richmond
Abstract: We use high-frequency interbank payments data to trace deposit flows in March 2023 and identify twenty-two banks that suffered a run, significantly more than the two that failed but fewer than the number that experienced large negative stock returns. The runs were driven by a small number of large depositors and were related to weak fundamentals. However, we find evidence for the importance of coordination because run banks were disproportionately publicly traded and many banks with similarly bad fundamentals did not suffer a run. Banks survived the run by borrowing new funds and raising deposit rates, not by selling securities.
Discussant: Shohini Kundu, University of California-Los Angeles
Abstract: We study the joint design of two prominent micro-prudential policy tools: bank regulation that enforces operational standards via rules, and market discipline through information disclosure. Disclosure can be state-contingent but creates a trade-off between incentives and the ex-post protection of weak banks. Hence, regulators use rules to maintain incentives and imperfect disclosure to provide ex-post insurance. In the optimal design, there is precautionary regulation to lower the risk of market freezes, and more disclosure in bad times to restore trade. Systemically important banks face more regulation but less disclosure. Banks prefer more disclosure but less regulation.
Discussant: Nicolas Inostroza, University of Toronto
Abstract: We study bank runs using a novel historical dataset covering 184 countries since 1800. Our approach combines narrative evidence from 467 sources with statistical indicators of systemic-wide bank deposit contractions to identify systemic bank runs. We find that: (i) the unconditional likelihood of a bank run is 1.9%; (ii) systemic bank runs---those accompanied by aggregate deposit outflows---are associated with substantially larger output losses than non-systemic runs or aggregate deposit contractions alone; (iii) systemic runs are associated with macroeconomic costs even when not triggered by clear macro- or micro-fundamental causes, banks are well-capitalized, and there is no evidence of an equity-driven crisis or widespread bank failures; and (iv) liability guarantees are associated with lower output losses after systemic runs, while having a lender of last resort or deposit insurance reduces the probability of a run becoming systemic. Our findings highlight a key role of sudden bank liability disruptions in economic fluctuations, over and above (aggregate) solvency concerns.
