Retaining Worried Depositors: Evidence from Multi-Brand Banks

Abstract

We study the impact of occasional panic-based (non-fundamental) spikes in public attention towards banks. We show that during the Global Financial Crisis, UK banks facing surges in attention respond by increasing retail deposit rates - only so for instant-withdrawal accounts. Exploiting differences across brands of the same bank, we find that banks respond even when surges are not justified by any underlying fundamental factor. Comparing onshore and offshore deposits by the same brand, we show that the absence of deposit insurance and a larger presence of wholesale depositors magnify the destabilising potential of attention. Our results point to a previously undocumented source of bank fragility.