Reading the Panic: How Investors Perceived Bank Risk During the 2023 Bank Run

The bank run that started in March 2023 in the U.S. occurred at an unusually rapid pace, suggesting that depositors were surprised by these events. Given that public data revealed bank vulnerabilities as early as 2022:Q1, were other market participants also surprised? In this post, based on a recent paper , we develop a new, high-frequency measure of bank balance sheet risk to examine how stock market investors’ risk sensitivity evolved around the run. We find that stock market investors only became attentive to bank risk after the run and only to the risk of a limited number (less than one-third) of publicly traded banks. Surprisingly, investors seem to have mostly focused on media exposure and not fundamentals when evaluating bank risk. In a companion post , we examine how the Federal Reserve’s liquidity support affected investor risk perceptions.