Crisis? What Crisis? Bank Stability, Financial Development, and State Propaganda
Koen Schoors (Ghent University); Ruben Enikilopov (Universitat Pompeu Fabra); Karolin Kirschenmann (Leibniz Centre for European Economic Research (ZEW)); Konstantin Sonin (Harris School of Public Policy, University of Chicago)
Abstract
How does government control over mass media affect banking system? Our theoretical model predicts that if the media are biased, depositors are less likely to run on their bank, but also less likely to deposit their money in the banking system in the first place. Empirically, we show that countries with more media freedom experience both more frequent banking crises and higher levels of financial development. We pin down the underlying mechanism with a case study from Russia’s 1998 banking crisis. Banks in areas with more access to an independent TV channel saw their depositors return faster in the aftermath of the crisis, in line with the reasoning that the crisis revealed differences in media bias across TV channels and induced differences in financial development at the bank level.