ECB: Keep Calm, But Watch the Outliers - Deposit Flows in Recent Crisis Episodes and Beyond

• The ECB report explores the dynamics of bank deposit flows during crisis events, notably the COVID-19 pandemic and the March 2023 banking turmoil. It aims to assess whether recent technological and social changes have fundamentally altered depositor behavior, challenging the existing assumptions of the Basel III Liquidity Coverage Ratio (LCR) standards.

• Key findings include:

1) Stability of Retail Deposits: Retail deposits remain a stable funding source for significant institutions (SIs) within the banking union. Despite increasing reliance on insured deposits, there is limited evidence of structural changes in the statistical behavior of deposit flows since 2016. The majority of deposit outflows during stress periods, including the pandemic and the March 2023 events, were within the conservative assumptions set by the Basel III LCR framework;

2) Role of Digitalization and Social Media: The report investigates whether increased digitalization and the spread of news via social media have amplified deposit outflows. While banks with a higher share of digital customers exhibited slightly higher volatility in deposit flows, the data do not conclusively show a structural shift attributable to these factors;

3) Policy Implications: The findings suggest that the LCR framework remains broadly fit for purpose, covering most observed stress episodes. However, rare and extreme outflows, typically tail events, highlight the need for enhanced supervisory metrics. The ECB recommends more granular and frequent reporting, particularly in light of increasing digitalization, to better anticipate potential liquidity risks.

Original source: https://www.ecb.europa.eu/pub/pdf/scpops/ecb.op361~145e704503.en.pdf