How Did Depositors Respond to COVID-19?

Why did banks experience massive deposit inflows during the pandemic? We discover that deposit interest rates at bank branches in counties with higher COVID-19 infection rates fell by more than rates at branches-even branches of the same bank-in counties with lower infection rates. Credit drawdowns, national policies, such as the Payment Protection Program, and a flight-to-safety do not account for these cross-branch changes in deposit rates. Evidence suggests that higher local COVID-19 infection rates are associated with households' greater anxiety about future job and income losses, anxiety that induces households to reduce spending and increase deposits.

Automated summary

During the pandemic, banks experienced massive deposit inflows, with deposit interest rates in counties with higher COVID-19 infection rates falling more than in counties with lower infection rates. Evidence suggests that higher local COVID-19 infection rates are associated with households' greater anxiety about future job and income losses, leading to reduced spending and increased deposits.