Review of Financial Studies Vol. 34 No. 11 2021

How Did Depositors Respond to COVID-19?

Ross Levine¹; Chen Lin²; Mingzhu Tai²; Wensi Xie³

¹ Haas School of Business, University of California, Berkeley · ² Faculty of Business and Economics, The University of Hong Kong , · ³ CUHK Business School, Chinese University of Hong Kong

Abstract

Why did banks experience massive deposit inflows during the pandemic? We discover that deposit interest rates at bank branches in counties with higher COVID-19 infection rates fell by more than rates at branches—even branches of the same bank—in counties with lower infection rates. Credit drawdowns, national policies, such as the Payment Protection Program, and a flight-to-safety do not account for these cross-branch changes in deposit rates. Evidence suggests that higher local COVID-19 infection rates are associated with households’ greater anxiety about future job and income losses, anxiety that induces households to reduce spending and increase deposits.

DOI

10.1093/rfs/hhab062

Volume

34

Issue

11

Pages

5438-5473

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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