How Did Depositors Respond to COVID-19?

Ross Levine, Chen Lin, Mingzhu Tai, Wensi Xie

NBER Working Paper No. 27964
Issued in October 2020
NBER Program(s):Corporate Finance, Economic Fluctuations and Growth, Monetary Economics

Why did banks experience massive deposit inflows during the first months of the pandemic? Using weekly branch-level data on interest rates and county-level data on COVID-19 cases, we discover that interest rates at bank branches in counties with higher COVID-19 infection rates fell by more than rates at other branches—even branches of the same bank in different counties. When differentiating weeks by the degree of stock market distress and counties by the likely impact of COVID-19 cases on economic anxiety, the evidence suggests that the deposit inflows were triggered by a surge in the supply of precautionary savings.

Acknowledgments

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Document Object Identifier (DOI): 10.3386/w27964