Who Can Tell Which Banks Will Fail?
Publication Year
2024
Type
Journal Article
Abstract
We study the run on the German banking system in 1931 to understand whether depositors anticipate which banks will fail in a major financial crisis. We find that deposits decline by around 20% during the run. There is an equal outflow of retail and non-financial wholesale deposits from both failing and surviving banks. In contrast, we find that interbank deposits decline almost exclusively for failing banks. Our evidence suggests that banks are better informed about which fellow banks will fail. In turn, banks being informed allows the interbank market to continue providing liquidity even during times of severe financial distress.
Journal
Review of Financial Studies
Documents