BAFI Academic Seminar
Speaker(s): Dasol Kim
Date & Time: Thursday, Oct. 8, 2015 from 2 p.m. to 3:30 p.m.
This paper provides evidence that financial literacy mitigates biases in depositor behavior during depositor runs following issuance of FDIC enforcement actions. Using survey data from the National Financial Capability Study, the financial literacy of respondents nearby branches of banks receiving an enforcement action significantly reduces deposit outflows. Additional tests exploiting heterogeneity in respondent characteristics show that the effects are unlikely due to uninsured depositors, knowledge of deposit insurance, or market-related factors, but rather related to misattribution of institution-specific shocks to potential losses in insured accounts if the bank were to fail. In other words, depositors lacking financial literacy may require additional assurances of safety by running rather than relying on deposit insurance guarantees. Depositors that run do not appear to completely leave the banking system, as nearby competing banks experience deposit inflows. Finally, I provide evidence of social factors that contribute to financial literacy development, suggesting plausibility for the identification strategy.
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Attachment: Dasol Kim 2
Weatherhead School of Management at Case Western Reserve University cultivates creativity, innovation, and purpose-driven leadership to design a better world.