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Deposit Withdrawals from Distressed Commercial Banks

  • Brown, Martin

    ()

  • Guin, Benjamin

    ()

  • Morkoetter, Stefan

    ()

We study retail deposit withdrawals from 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, especially when a bank receives a public bailout. However, the withdrawal risk for a distressed bank is mitigated by strong bank-client relationships and household-level switching costs: Households which rely on a single deposit account, which do not live close to a non-distressed bank, or which maintain a credit relationship with a distressed bank are significantly less likely to withdraw deposits. 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://www1.vwa.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/Schools/Finance.aspx

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  2. Brown, Martin & Hoffmann, Matthias, 2013. "Mortgage Relationships," Working Papers on Finance 1310, University of St. Gallen, School of Finance.
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  8. Schumacher, Liliana, 2000. "Bank runs and currency run in a system without a safety net: Argentina and the 'tequila' shock," Journal of Monetary Economics, Elsevier, vol. 46(1), pages 257-277, August.
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  16. Goldberg, Lawrence G. & Hudgins, Sylvia C., 2002. "Depositor discipline and changing strategies for regulating thrift institutions," Journal of Financial Economics, Elsevier, vol. 63(2), pages 263-274, February.
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  21. Laura Bartiloro, 2011. "Is your money safe? What Italians know about deposit insurance," Questioni di Economia e Finanza (Occasional Papers) 104, Bank of Italy, Economic Research and International Relations Area.
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