Deposit and Credit Reallocation in a Banking Panic: The Role of State-Owned Banks
See all articles by Viral V. Acharya
Viral V. Acharya
Professor; New York University - Leonard N. Stern School of Business; New York University (NYU) - Department of Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); National Bureau of Economic Research (NBER)
Abhiman Das
Nirupama Kulkarni
CAFRAL
Prachi Mishra
International Monetary Fund (IMF) - Research Department
Nagpurnanand Prabhala
The Johns Hopkins Carey Business School
NBER Working Paper No. w30557
Number of pages: 77 Posted: 17 Oct 2022 Last Revised: 30 Dec 2022
We study a bank run in India in which private bank branches experience sudden and considerable loss of deposits that seek safety in state-owned public sector banks (PSBs). We trace the consequences of this reallocation using granular data on bank- firm relationships and branch balance sheets. The flight to safety is not a flight to quality. Lending shrinks and credit quality improves at the run banks but worsens at the recipient PSBs. The effects are pronounced in weaker PSBs, the ones more likely to exploit the shelter of state ownership. The resource reallocation is inefficient in the aggregate.
Keywords: Bank run, state-owned banks, credit misallocation, allocative efficiency
JEL Classification: F34, G23, G28, G33, K42, O53
Acharya, Viral V. and Acharya, Viral V. and Das, Abhiman and Kulkarni, Nirupama and Mishra, Prachi and Prabhala, Nagpurnanand, Deposit and Credit Reallocation in a Banking Panic: The Role of State-Owned Banks (October 7, 2022). Available at SSRN: https://ssrn.com/abstract=4241013 or http://dx.doi.org/10.2139/ssrn.4241013
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