Who Can Tell Which Banks Will Fail? - FEDERAL RESERVE BANK of NEW YORK

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Staff Reports

Who Can Tell Which Banks Will Fail?

Number 1005
February 2022 Revised May 2025

JEL classification: G01, G21, N20, N24

Authors: Kristian S. Blickle, Markus Brunnermeier, and Stephan Luck

We study the run on the German banking system in 1931 to study whether depositors anticipate which banks will fail. We find that deposits decline by around 20 percent during the run. There is an equal outflow of retail and non-financial wholesale deposits from both failing and surviving banks. In contrast, we find that interbank deposits decline almost exclusively for failing banks. Our evidence suggests that while regular depositors are uninformed, banks have precise information about which banks will fail. In turn, banks being informed allows the interbank market to continue providing liquidity even during times of severe financial distress.

Available only in PDF

Author Disclosure Statement(s)

Kristian Blickle
I have nothing to disclose.

Markus Brunnermeier
I have nothing to disclose.

Stephan Luck
I have nothing to disclose.

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