Information provided by Federal Reserve and FDIC regulators can reduce the likelihood of depositors pulling their money following a bank run, but that same information coming from politicians is likely only to affect their electoral base, according to a new analysis of public opinion polling following the Silicon Valley Bank failure.
The analysis published by the Centre for Economic Policy Research examined a poll of about 6,000 U.S. households conducted after SVB’s collapse. Depositors with no prior knowledge of the bank were more likely to pull money from their accounts after news of its failure broke, the authors concluded. News of the failure did not affect those who previously knew about SVB’s situation. Among those who didn’t know about SVB before its failure, communication from the Fed and from regulators about FDIC deposit insurance dramatically reduced the likelihood to pull deposits, almost negating the effects of news of the bank’s collapse. “Hence, communication by the Fed and information about deposit insurance emerge as a potentially powerful tool to reassure depositors and prevent panic-driven bank runs,” the authors said.
The effects of reassurance from politicians were more limited, with a statement by President Joe Biden reducing the likelihood of a bank run only among Democrats. “This underscores the limits of political communication—even by the top government officials—in the current environment of strong political polarisation,” the authors wrote.
