Deposit and Credit Reallocation in a Banking Panic: The Role of State-Owned Banks
We study a bank run in India in which private bank branches experience sudden and considerable loss of deposits, which migrate to state-owned public sector banks (PSBs) that serve as safe havens. We trace the consequences of the deposit reallocation using bank branch-level balance sheet and firm-bank lending data. The flight to safety is not a flight to quality. Lending shrinks and credit quality improves in run banks, but worsens in PSBs receiving the flight-to-safety flows. The reallocation of resources is not efficient in the aggregate.
More from NBER
In addition to working papers, the NBER disseminates affiliates’ latest findings through a range of free periodicals — the NBER Reporter, the NBER Digest, the Bulletin on Retirement and Disability, the Bulletin on Health, and the Bulletin on Entrepreneurship — as well as online conference reports, video lectures, and interviews.
