Deposit Withdrawals from Distressed Banks: Client Relationships Matter

Item Type Journal paper
Abstract

We study retail deposit withdrawals from commercial banks that were differentially exposed to distress during the 2007-2009 financial crisis. We show that the propensity of clients to withdraw deposits increases with the severity of bank distress. However, an exclusive pre-crisis bank-client relationship eliminates withdrawal risk. The mechanism through which strong bank-client relationships mitigate withdrawal risk relates to the transaction costs of switching accounts rather than informational rents or differentiated services. Our findings provide empirical support to the Basel III liquidity regulations that emphasize the role of well-established client relationships for the stability of bank funding.

Authors Brown, Martin; Morkötter, Stefan & Guin, Benjamin
Journal or Publication Title Journal of Financial Stability
Language English
Keywords Liquidity Risk, Relationship Banking, Market Discipline
Subjects business studies
economics
finance
HSG Classification contribution to scientific community
HSG Profile Area SOF - System-wide Risk in the Financial System
Refereed Yes
Date February 2020
Publisher Elsevier
Volume Vol. 46
Publisher DOI https://doi.org/10.1016/j.jfs.2019.100707
Official URL https://www.sciencedirect.com/science/article/pii/...
Contact Email Address martin.brown@unisg.ch
Depositing User Prof. Dr. Martin Brown
Date Deposited 04 Nov 2013 12:00
Last Modified 20 May 2020 08:19
URI: https://www.alexandria.unisg.ch/publications/227118

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Citation

Brown, Martin; Morkötter, Stefan & Guin, Benjamin (2020) Deposit Withdrawals from Distressed Banks: Client Relationships Matter. Journal of Financial Stability, Vol. 46

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https://www.alexandria.unisg.ch/id/eprint/227118
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