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Deposit and Credit Reallocation in a Banking Panic: The Role of State- Owned Banks

Author

Listed:
  • Viral V. Acharya

    (New York University, Stern School of Business.)

  • Abhiman Das

    (Indian Institute of Management Ahmedabad, India.)

  • Nirupama Kulkarni

    (CAFRAL, Reserve Bank of India, Mumbai, India.)

  • Prachi Mishra

    (Department of Economics and Isaac Center for Public Policy, Ashoka University)

  • Nagpurnanand Prabhala

    (The Johns Hopkins University Carey Business School, Washington, DC.)

Abstract

We study a bank run in India in which private bank branches experience sudden and considerable loss of deposits, which migrate to state-owned public sector banks (PSBs) that serve as safe havens. We trace the consequences of the deposit reallocation using bank branch-level balance sheet and firm-bank lending data. The flight to safety is not a flight to quality. Lending shrinks and credit quality improves in run banks, but worsens in PSBs receiving the flight-to-safety flows. The reallocation of resources is not efficient in the aggregate.

Suggested Citation

  • Viral V. Acharya & Abhiman Das & Nirupama Kulkarni & Prachi Mishra & Nagpurnanand Prabhala, 2025. "Deposit and Credit Reallocation in a Banking Panic: The Role of State- Owned Banks," Working Papers 140, Ashoka University, Department of Economics.
    • Handle: RePEc:ash:wpaper:140
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    References listed on IDEAS

    as
    1. Kristian Blickle & Markus Brunnermeier & Stephan Luck, 2024. "Who Can Tell Which Banks Will Fail?," The Review of Financial Studies, Society for Financial Studies, vol. 37(9), pages 2685-2731.
    2. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-329, May.
    3. Jeremy C. Stein & Anil K. Kashyap, 2000. "What Do a Million Observations on Banks Say about the Transmission of Monetary Policy?," American Economic Review, American Economic Association, vol. 90(3), pages 407-428, June.
    4. Shawn Cole, 2009. "Financial Development, Bank Ownership, and Growth: Or, Does Quantity Imply Quality?," The Review of Economics and Statistics, MIT Press, vol. 91(1), pages 33-51, February.
    5. Lamont, Owen, 1997. "Cash Flow and Investment: Evidence from Internal Capital Markets," Journal of Finance, American Finance Association, vol. 52(1), pages 83-109, March.
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    2. Boubakri, Narjess & Cotelioglu, Efe & Samet, Anis, 2026. "Bank government ownership and reaction to SVB collapse: Evidence from emerging markets," The Quarterly Review of Economics and Finance, Elsevier, vol. 105(C).
    3. Shy, Oz, 2025. "Faster bank runs," European Economic Review, Elsevier, vol. 172(C).
    4. van der Geest, Jesse, 2024. "Economic effects of tax avoidance and compliance," Other publications TiSEM aaca33bf-975d-4e21-9b5f-5, Tilburg University, School of Economics and Management.

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    More about this item

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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