Topic: Deposit Withdrawals

Speaker: Daniel Paravisini, Professor of Finance, The London School of Economics

Date: October 23, 20  19 (Wednesday)

Time: 10:00am-11:30am

Location: 4-101, Building 4

Language: English

Abstract:

This paper develops a new approach to identify and quantify different rationales for deposit withdrawals. Exploiting variation in the cost of withdrawal induced by the maturity expiration of time-deposits, the approach can distinguish between withdrawals due to liquidity needs, exposure to fundamental uncertainty, or expectations about how other depositors will behave. Using daily micro-data from a large Greek bank we show that early deposit withdrawal probability quadruples in response to a policy uncertainty shock that doubled the short-run CDS price of Greek sovereign bonds. About two-thirds of this increase is driven by direct exposure to policy uncertainty with the remainder due to changes in expectations of behavior of other depositors. We estimate depositors' willingness to pay to avoid uncertainty to quantify the effects and find that depositors would have had to be offered annualized returns exceeding 50% to prevent withdrawals during high-uncertainty periods.

About the speaker:

Daniel Paravisini is a Professor of Finance at the London School of Economics. He has a Ph.D. in economics from the Massachusetts Institute of Technology, and has published his research on credit markets and institutions in top economics, finance, and behavioral sciences journals such as the American Economic Review, the Journal of Finance, the Review of Economic Studies, and Management Science. Professor Paravisini’s research has received three times the Brattle Award, given by the American Finance Association to the best papers in Corporate Finance published by their journal every year. He is an Associate Editor of the Journal of Finance and the Review of Economic Studies, and a research associate of the Centre for Economic Policy Research.