• Print
  • Email

Policy Discussion Paper, No. PDP 2009-9, December 2009
Banking Crises and Investor Confidence: An Empirical Investigation

In addition to their direct effects, banking crises may decrease investor confidence; lead some investors to withdraw funds from the formal financial sector, and thereby exacerbate the impact of crises.  We quantify the effects of financial crises on investor confidence by studying the investment behavior of immigrants in the U.S. who vary in their exposure to systemic banking crises prior to arriving in the U.S.  We find that individuals who have experienced a systemic banking crisis in their countries of origin are 11 percentage points less likely to use banks in the U.S. compared to otherwise similar individuals from the same country that have not lived through a crisis. This finding is robust to including country-decade of migration fixed effects and other methods to address potential unobserved heterogeneity.  Consistent with the view that personal experience plays an important role in decision-making, we also find that the effects of living through a crisis are larger for individuals who are adults at the time of the crisis and for people who experience crises in countries without deposit insurance.

Policy discussion papers are not edited, and all opinions and errors are the responsibility of the author(s). The views expressed do not necessarily reflect the views of the Federal Reserve Bank of Chicago or the Federal Reserve System.

Having trouble accessing something on this page? Please send us an email and we will get back to you as quickly as we can.

Federal Reserve Bank of Chicago, 230 South LaSalle Street, Chicago, Illinois 60604-1413, USA. Tel. (312) 322-5322

Copyright © 2023. All rights reserved.

Please review our Privacy Policy | Legal Notices