Bank Stocks and Deposit Flows Partners in Banking Stress

Abstract: Bank stability relies on the stability of deposit flows. When deposits are uninsured, these flows depend on the extent of information available, both about banks' health and about depositors' behavior. For banks listed in stock markets this information is revealed quickly and widely through prices. We exploit confidential high frequency data on deposit flows to show that deposits are less stable on banks that are listed and that hold more uninsured deposits. Further, we document a nonlinearity in this relation, which suggests the existence of a doom loop between bank stocks and withdrawals.