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Calming the Panic: Investor Risk Perceptions and the Fed’s Emergency Lending during the 2023 Bank Run

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Abstract

In a companion post, we showed that during the bank run of spring 2023 investors were seemingly not concerned about bank risk broadly but rather became sensitized to the risk of only about a third of all publicly traded banks. In this post, we investigate how the Federal Reserve’s liquidity support affected investor risk perceptions during the run. We find that the announcement of the Fed’s novel Bank Term Funding Program (BTFP), and subsequent borrowings from the program, substantially reduced investor risk perceptions. However, borrowings from the Fed’s traditional discount window (DW) had no such effect.

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  • Natalia Fischl-Lanzoni & Martin Hiti & Asani Sarkar, 2025. "Calming the Panic: Investor Risk Perceptions and the Fed’s Emergency Lending during the 2023 Bank Run," Liberty Street Economics 20250930b, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:101879
    DOI: 10.59576/lse.20250930b
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    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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