Skip Header

Federal Deposit
Insurance Corporation

Each depositor insured to at least $250,000 per insured bank

Center for Financial Research

Working Papers

All Links on this page reference Portable Document Format (PDF) files. Adobe acrobat, a reader available for free on the Internet, is required to display or print PDF files. (PDF Help)


  • +Deposit Inflows and Outflows in Failing Banks: The Role of Deposit Insurance- PDF
    FDIC Center for Financial Research Working Paper No. 2018-02
    Christopher Martin‡, Manju Puri„ and Alexander Ufier‡

    This Version: May 2018

    Using unique, daily, account-level balances data we investigate deposit stability and the drivers of deposit outflows and inflows in a distressed bank. We observe an outflow (run-off) of uninsured depositors from the bank following bad regulatory news. We find that government deposit guarantees, both regular deposit insurance and temporary deposit insurance measures, reduce the outflow of deposits. We also characterize which accounts are more stable (e.g., checking accounts and older accounts). We further provide important new evidence that, simultaneous with the run-off, gross funding inflows (run-in) are large and of first-order impact - a result which is missed when looking at aggregated deposit data alone. Losses of uninsured deposits were largely offset with new insured deposits as the bank approached failure. We show our results hold more generally using a large sample of banks that faced regulatory action. Our results raise questions about depositor discipline, widely considered to be one of the key pillars of financial stability, raising the importance of other mechanisms of restricting bank risk taking, including prudent supervision.

    JEL Codes: G21, G28, D12, G01
    Keywords: deposit insurance, deposit inflows, funding stability, depositor discipline

  • +The Dark-Side of Banks’ Nonbank Business: Internal Dividends in Bank Holding Companies- PDF
    FDIC Center for Financial Research Working Paper No. 2018-01
    Jonathan Pogach and Haluk Unal

    This Version: January 2018

    Our study highlights the liquidity and capital pressures created by non-banking activities on banks residing within the same bank holding company (BHC). We use a sample of BHCs with large non-bank subsidiaries between 2002 and 2007 to show that banks bear the pressures of dividend smoothing. Banks in BHCs increase internal dividends to parents regardless of their own income. In contrast, non-banks in BHCs appear to be shielded from the pressures of inflexible external dividend policies. We also show that when faced with declining incomes, the banks fund their internal dividends through increased borrowing. Using a differences-in-differences, we show that banks in BHCs increase their payout ratios by 7 percentage points following major non-bank acquisitions during an expanded sample period of 1993-2007. Our evidence on the extraction of cash from banks to fund non-bank activities and capital market pressures to smooth dividends sheds new light on the debate on the optimal scope of BHCs. These observations support the arguments of a dark-side to internal capital markets in which the federally insured banks become a source of strength to the BHC and its non-bank segment.

    JEL Codes: D22, G21, G31, G35, G38, L25
    Keywords: dividends, payout policy, internal capital markets, bank holding company, risk shifting, bank scope-economies

Skip Footer back to content