The Fundamental Role of Uninsured Depositors in the Regional Banking Crisis

We examine the role of uninsured depositors in the 2023 Regional Banking Crisis. Regional banks with more uninsured deposits experienced greater equity value declines during the March 2023 crisis period. Before 2022, these banks also had greater risk, profitability, valuations, executive pay, and exposure to commercial loans than other banks but had similar securities exposure. We explain these facts with a model where banks better at risk-taking attract large uninsured depositors who are also corporate clients with loan demand. Higher interest rates in 2022 reduce lending-relationship values, leading to a reallocation of uninsured deposits, months before the Silicon-Valley Bank run.