Affiliation:
1. Federal Reserve Bank of New York , USA
2. Princeton University , USA
Abstract
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 nonfinancial wholesale deposits from both failing and surviving banks. In contrast, we find that interbank deposits almost exclusively decline 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.
Funder
Princeton University
Bendheim Center for Finance, Lars Peter Hansen
Macro Financial Modeling
Publisher
Oxford University Press (OUP)
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