Anatomy Of A Banking Panic
Author(s) Viral Acharya, Abhiman Das, Nirupama Kulkarni and Prachi Mishra


We develop micro-level evidence on a large-scale flight to safety by retail bank depositors. Private Banks in India, who had little exposure to US experienced sudden withdrawals of deposits after the 2008 financial crisis in the US, reflecting pure panic of retail clients. We quantify, characterize, and examine the lending consequences of the deposit flight using granular branch-level data on deposits. Deposit flights are local as they transfer resources from private to public sector banks in the same district. The panic results in flight of both short and long-term deposits but the deposit gains are in term deposits, suggesting that panics result in more stable funding in the aggregate. There is significant credit reallocation due to panic flows due to differences in sectoral adjustments between branches losing and gaining deposits. Flights to safety thus reallocate deposits within local markets but transform the structure of bank assets and liabilities within the markets. 

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