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The Rise in Deposit Flightiness and Its Implications for Financial Stability

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Abstract

Deposits are often perceived as a stable funding source for banks. However, the risk of deposits rapidly leaving banks—known as deposit flightiness—has come under increased scrutiny following the failures of Silicon Valley Bank and other regional banks in March 2023. In a new paper, we show that deposit flightiness is not constant over time. In particular, flightiness reached historic highs after expansions in bank reserves associated with rounds of quantitative easing (QE). We argue that this elevated deposit flightiness may amplify the banking sector’s response to subsequent monetary policy rate hikes, highlighting a link between the Federal Reserve’s balance sheet and conventional monetary policy.

Suggested Citation

  • Kristian S. Blickle & Jian Li & Xu Lu & Yiming Ma, 2025. "The Rise in Deposit Flightiness and Its Implications for Financial Stability," Liberty Street Economics 20250710, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:101247
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    Keywords

    banking; deposits;

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • E00 - Macroeconomics and Monetary Economics - - General - - - General

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