Liquidity, News or Runs? A New Approach to Isolating Depositor Withdrawal Motives
This paper develops a new approach to isolate and quantify the extent to which deposit withdrawals are due to liquidity, news about fundamentals, or expectations about how other depositors will behave. We use high frequency micro-data on insured time-deposits from a large Greek bank over a long time period that spans quiet periods as well as events with large policy uncertainty. We exploit discontinuities in cost from early withdrawal of time deposits to isolate deposit outflows due to liquidity shocks. In addition, we use variation induced by maturity of time deposits around the large policy uncertainty events to filter deposit withdrawals due to news about fundamentals from those about expectations of other depositor behavior. In quiet times, a decline in €100 of withdrawal cost increases the probability of deposit withdrawals by 30%. In response to a policy uncertainty shock that doubled the short-run CDS price of Greek sovereign bonds, the early deposit withdrawal probability increased 3.6 times, with 1/3rd driven by expectations of other depositor behavior and the rest by news about fundamentals. Our findings shed new light on regulation of deposits.