Paper: arXiv 2506.03344

Authors: Matt Brigida, Kathleen Maceyka

Abstract

In this analysis we determine factors driving the cross-sectional variation in uninsured deposits during the interest rate raising cycle of 2022 to 2023. The goal of our analysis is to determine whether banks proactively managed deposit run risk prior to the hiking cycle which produced the 2023 Regional Banking Crisis. We find evidence that interest rate forward, futures, and swap use affected the change in a bank uninsured deposits over the period. Interest rate option use, however, has no effect on the change in uninsured deposits. Similarly, bank equity levels were uncorrelated with uninsured deposit changes. We conclude we find no evidence of banks managing run risk via their balance sheet prior to the 2023 Regional Banking Crisis.

Complexity vs Empirical Score

  • Math Complexity: 2.0/10
  • Empirical Rigor: 6.5/10
  • Quadrant: Street Traders — practical and empirical, lighter on theory

Why this score: The paper relies entirely on empirical, reduced-form cross-sectional regressions using FDIC Call Report data rather than formal mathematical modeling. While it provides a clear and straightforward test of theoretical propositions surrounding the 2023 regional banking crisis, its empirical analysis is severely constrained by data limitations, such as lacking directional derivative exposure.

Research Flowchart

  flowchart TD
    A["Research Question: Did banks proactively hedge deposit run risk prior to the 2023 Regional Banking Crisis?"] --> B["Data Collection: Call Reports (2022–2023)"]
    
    subgraph Analysis ["Methodology & Inputs"]
        B --> C["Inputs: Uninsured Deposits, Equity Levels, Derivatives Use (Forwards, Futures, Swaps, Options)"]
        C --> D["Cross-Sectional Regression Analysis"]
    end

    D --> E{"Computational Outcomes"}
    
    E -- "Forwards, Futures & Swaps" --> F["Significant effect on change in uninsured deposits"]
    E -- "Options & Equity Levels" --> G["No effect / Uncorrelated with deposit changes"]

    F --> H
    G --> H["Conclusion: No evidence of proactive balance sheet management of run risk"]