Anatomy of a Bank Run in Opaque Banking Sector: Who Sees What Why
Abstract: In this paper we analyze the connection between bank malfeasance and bank run in the presence of an exogenous regulatory shock. We use a rare policy shock that triggered information-induced bank panic in Russia in 2004 when Central Bank unexpectedly closed one of the banks and announced plans to close down banks for involvement in suspicious offshore operations and money laundering activities. In particular, we analyze what kind of bank-level information is determining a run on a particular bank and by what type of depositors. We find that after the bank run other banks are likely to decrease dealings with suspicious banks: i.e. with banks doing a lot of offshore and/or cash-only operations. We do not find any evidence that such bank suspicious operations are visible to non-financial companies and individuals. We further explore heterogeneity with respect to deposit-owner banks’ characteristics and find that it is more transparent banks that are likely to stop doing business with (by withdrawing their deposits from) suspicious banks as a results of Central Bank announcement. Overall these results provide a rare glimpse in the anatomy of a bank run in the economy riddled with agency and regulatory compliance problems.