Authors: Natalia Fischl-Lanzoni, Martin Hiti, Nathan Kaplan, and Asani Sarkar
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Staff Reports
Investor Attention to Bank Risk During the Spring 2023 Bank Run
Number 1095
April 2024 Revised August 2024
April 2024 Revised August 2024
JEL classification: G01, G12, G14, G21
We examine how investors’ perception of bank balance sheet risk evolved before and during the March- April 2023 bank run. To do so, we estimate the covariance (“beta”) of bank excess stock returns with returns on factors constructed from long-short portfolios sorted on shares of uninsured deposits and unrealized losses on securities. We find that the market’s perception of bank risk shifted in both the time series and the cross-section. From January 2022 to February 2023, both factor betas were mostly insignificant but, after the bank run started, they became positive and significant for all banks on average. Surprisingly, however, in the cross-section, the factor betas only of banks that were downgraded or put on downgrade watch, were significant — even though we find the rating announcements to be noninformative for these banks. We suggest that investors with limited attention focused on the banks included in the ratings announcements to update their priors on balance sheet risk.
Author Disclosure Statement(s)
Natalia Fischl-Lanzoni
I declare that I have no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Martin Hiti
The author declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Nathan Kaplan
I declare that I have no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Asani Sarkar
The author declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
I declare that I have no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Martin Hiti
The author declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Nathan Kaplan
I declare that I have no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Asani Sarkar
The author declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Suggested Citation:
Fischl-Lanzoni, Natalia, Martin Hiti, Nathan Kaplan, and Asani Sarkar. 2024. “Investor Attention to Bank Risk During the Spring 2023 Bank Run.” Federal Reserve Bank of New York Staff Reports, no. 1095, March. https://doi.org/10.59576/sr.1095
Fischl-Lanzoni, Natalia, Martin Hiti, Nathan Kaplan, and Asani Sarkar. 2024. “Investor Attention to Bank Risk During the Spring 2023 Bank Run.” Federal Reserve Bank of New York Staff Reports, no. 1095, March. https://doi.org/10.59576/sr.1095
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