The silicon valley bank collapse, deposit insurance concentration, and stock market returns

Abdullah M. Al-Awadhi, Saad Alnahedh, Ahmad Bash

Article ID: 9104
Vol 8, Issue 12, 2024

VIEWS - 21 (Abstract) 13 (PDF)

Abstract


In this study, we explore the impact of contemporary bank run incidents on stock market performance, taking into consideration insured deposit concentration. Specifically, we use data from the recent downfall of the Silicon Valley Bank (SVB). By employing event study methods with the mean-adjusted return model and market models, we evaluate the cumulative abnormal returns (CARs). Our findings reveal a substantial negative CAR for all the listed companies in our sample, suggesting that the SVB crisis adversely affected stock returns. Further analysis shows an even more pronounced effect on the banking sector and that banks with a high concentration of insured deposits experienced economically and statistically less negative CARs. We also find that the response by the Treasury Department, the Federal Reserve, the Federal Deposit Insurance Corporation, and other agencies—aimed at fully safeguard all depositors—led a rebound in CARs. Our results highlight the importance of deposit insurance policy and regulatory responses in protecting the financial system during panic events.


Keywords


stock returns; event study; insured deposits; bank runs; financial risk

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DOI: https://doi.org/10.24294/jipd.v8i12.9104

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