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Deposit Withdrawals from Distressed Commercial Banks: The Importance of Switching Costs

  • Brown, Martin

    ()

  • Guin, Benjamin

    ()

  • Morkoetter, Stefan

    ()

We study retail deposit withdrawals from large European commercial banks which incurred investment losses in the wake of the U.S. subprime crisis. We document a strong propensity of households to withdraw deposits from distressed banks even though the banks were widely considered to be too-big-to-fail. However, this withdrawal risk is substantially mitigated by client-level switching costs that arise from a tight relationship with a distressed bank or limited access to non-distressed banks. Our findings provide empirical support to the Basel III liquidity regulations which emphasize the role of well-established client relationships for the stability of bank funding.

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File URL: http://ux-tauri.unisg.ch/RePEc/usg/sfwpfi/WPF-1319.pdf
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Paper provided by University of St. Gallen, School of Finance in its series Working Papers on Finance with number 1319.

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Length: 45 pages
Date of creation: Nov 2013
Date of revision:
Handle: RePEc:usg:sfwpfi:2013:19
Contact details of provider: Phone: +41 71 243 40 11
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Web page: http://www.unisg.ch/de/universitaet/schools/finance

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