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 cross-country dataset that covers 184 countries since 1800 and combines a new narrative chronology with statistical indicators of bank deposit withdrawals. We document the following facts: (i) the unconditional likelihood of a bank run is 1.9%, and that of significant deposit withdrawals is 12.5%; (ii) systemic bank runs---those that are accompanied by deposit withdrawals---are associated with substantially larger output losses than non-systemic runs or deposit contractions alone; (iii) bank runs are contractionary even when they are not triggered by fundamental causes, banks are well-capitalized, and there is no evidence of a crisis or widespread failures in the banking sector; (iv) in both historical and contemporary episodes, depositors tend to run on highly leveraged banks, which leads to a credit crunch and a reallocation of deposits across banks; and (v) 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. Overall, our findings highlight a key role of sudden bank liability disruptions in economic fluctuations, over and above other sources of financial fragility.
