Limiting Too-Big-to-Fail & the Rise of Banking Fragility

Workshop’s Topic: We show that increased regulation of large banks contributed to the rise in banking sector fragility in the run- up to the regional banking crisis of 2023. Since 2018, US regulators have prevented Wells Fargo from growing beyond 1.95 trillion US dollars in assets. Under pressure from this asset cap, Wells Fargo shrank geographically and its deposit growth stalled. Wells Fargo gave up large uninsured deposits to stay under the asset cap. We show that smaller, less regulated banks stepped in to fill the gap. Banks geographically closer to Wells Fargo experienced an influx of transient uninsured deposits, particularly during the COVID-19 period. In turn, these banks experienced higher deposit outflows when monetary tightening began and had lower stock returns after the Silicon Valley Bank collapse. We rule out alternative explanations by showing that deposit growth is higher in branches that compete directly with Wells Fargo than in other branches of the same bank in the same district.

Time and Location: 9:45-11:15 AM (GMT+8), Room A423 (School of Management)

Language: Bilingual (Chinese and English)

Introduction of Speakers

Assist. Prof. RUAN Tianyue

National University of Singapore, School of Business

RUAN Tianyue is an Assistant Professor of Finance at the School of Business, National University of Singapore, and Ph.D. in Finance at Stern Business School, New York University. Her teaching and research areas are financial markets and institutions, systemic risk, financial stability, family finance, etc. Her findings have been published (or accepted) in Proceedings of the National Academy of Sciences, Management Science.