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Runs to Banks: The Role of Sweep Banking Deposits During Market Downturns

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  • James R. Barth
  • Mark Mitchell
  • Yanfei Sun

Abstract

vice versaSweep deposits are a relatively recent and important innovation that allows the seamless transfer of client cash from brokerage firms to bank accounts and. We find that funds swept from brokerage firms to banks vary inversely with stock market performance. When the stock market declines, retail investors reduce risk and sell stocks, with the proceeds swept out of brokerage firms and into banks. The relation is asymmetric as sweep deposits do not appear to decline in response to positive movements in the stock market. Sweep deposits are the primary driver backing the same asymmetric relation between domestic bank deposits and the stock market. Moreover, sweep deposits provide additional financing stability to banks as households reduce risk by converting stocks to deposits during stress periods, helping to fund drawdowns in lines of credit by firms.

Suggested Citation

  • James R. Barth & Mark Mitchell & Yanfei Sun, 2025. "Runs to Banks: The Role of Sweep Banking Deposits During Market Downturns," Critical Finance Review, now publishers, vol. 14(2), pages 277-328, April.
    • Handle: RePEc:now:jnlcfr:104.00000159
    DOI: 10.1561/104.00000159
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