Who Can Tell Which Banks Will Fail?

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...

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Bibliographic Details
Published in:The Review of financial studies 2024-09, Vol.37 (9), p.2685-2731
Main Authors: Blickle, Kristian, Brunnermeier, Markus, Luck, Stephan
Format: Article
Language:English
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Summary: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.
ISSN:0893-9454
1465-7368
DOI:10.1093/rfs/hhae020