Central Bank Communication and Depositors’ Behavior

Textual sentiment and bank deposits: The impact of Central Bank communication

How does central bank language affect depositors' behaviour in Europe? Textual sentiment derived from ECB president speeches can serve as a valuable qualitative disclosure for depositors to evaluate risks.


A recent study conducted by researchers from the Athens University of Economics and Business in Greece investigated whether the textual sentiment, also known as the tone of written communication, affects the behaviour of European depositors when they withdraw their deposits.

Why Do Bank Deposits Matter To Us?

The flow of bank deposits is a crucial factor in financial stability. It is, therefore, closely examined by regulators and creditors, as well as receiving significant attention in the banking literature. Fluctuations in bank deposits can significantly impact the macroeconomic environment, affecting aggregate investment and consumption. Excessive withdrawals can even trigger a banking crisis, disrupting credit flows to households and businesses and potentially forcing previously sustainable firms into bankruptcy. Thus, it’s clear that large outflows of bank deposits profoundly impact the macroeconomy. When these outflows are driven by non-fundamental factors like sentiment or expectations, government or macroprudential policies to reduce volatile deposit flows become even more crucial.

EU Deposit Protection Scheme

In 2014, the European Union (EU) adopted Directive 2014/49/EU, requiring all EU countries to establish a deposit protection scheme with a limit of €100,000 that all banks must participate. The primary goal of this directive is to safeguard depositors of all credit institutions and to ensure the stability of the European banking system. Deposits are protected per depositor per bank, meaning all deposits held by individuals and companies, regardless of size, are covered. This limit of €100,000 applies to all aggregated accounts at the same bank, whether the depositor is an individual or a firm. While the existence of a deposit insurance scheme may suggest that there is no reason for depositors to withdraw their money, it could still be argued otherwise.

Despite deposit insurance, depositors may still withdraw their deposits due to either ignorance of their existence or lack of trust in the system. While implementing explicit deposit insurance has been widely used in EU countries to avoid bank runs and stabilize economies, it creates a dilemma. On the one hand, it can prevent bank runs and stabilize economies, but on the other hand, it may diminish market discipline and lead to increased risk-taking by banks. Additionally, a general perception of risk or uncertainty in the banking system can result in a loss of trust and confidence, potentially destabilizing the system. Therefore, it’s essential to consider the impact of language on public perception and behaviour in the banking system, even with deposit protection schemes in place.

Lexica art Generated
Credit. Lexica art Generated

Impact of Central Bank Communication

Previous studies have shown that depositors exhibit low sensitivity to bank or macro-specific fundamentals, particularly during crises. Hence, it’s reasonable to assume that factors beyond bank fundamentals may influence deposit flows, and depositor sentiment could be one of them. While other types of sentiments have been explored in the literature on deposits, this study is the first to examine the impact of “textual” sentiment on depositors’ behaviour. This textual sentiment was derived from the speeches of the President of the European Central Bank (ECB), and it’s believed to express information on the current and future economic and financial state of the Euro area.

In this context, if the information conveyed by these words is “uncertainty” or “modal weak” in a way that negatively affects public opinion’s future expectations of the economy’s fundamentals, then it’s possible that these words could be used to proxy the herding behaviour of individuals. If the ECB President uses more uncertainty or modal weak words, depositors will likely form more uncertain expectations about the future and ultimately withdraw their deposits. We suggest that these two textual sentiment metrics can serve as valid and qualitative disclosures for depositors to evaluate risks when making short-term projections of future economic conditions. Specifically, increased uncertainty within the ECB president’s monthly speeches could heighten depositors’ perceived fear, resulting in bank deposit outflows.


Journal reference

Anastasiou, D., & Katsafados, A. (2023). Bank deposits and textual sentiment: When an European Central Bank president’s speech is not just a speech. The Manchester School. https://doi.org/10.1111/manc.12426

Dimitris Anastasiou studied at the Athens University of Economics and Business, holding a B.Sc. in Economics, an M.Sc. in Applied Economics and Finance, and a Ph.D. in Banking and Finance. He is currently a Research Economist at Alpha Bank (Economic Research Division) and an Adjunct Lecturer at the Athens University of Economics and Business. His main research interests lie around Empirical Banking and Applied Financial Economics. He has published extensively in international academic journals such as Journal of Economic Behavior and Organization, Journal of Business Research, Journal of International Money and Finance and International Journal of Finance and Economics.

Dr. Apostolos G. Katsafados studied at the Athens University of Economics and Business (AUEB), earning a B.Sc. in Economics, an M.Sc. in Applied Economics and Finance, and a Ph.D. in Textual Analysis in Finance. Currently, he is a Research Economist at the Central Bank of Greece (Statistics Division), where he co-created the formal statistical model of credit evaluation for Greece (Greek ICAS), approved by the ECB. He is also an Adjunct Lecturer at AUEB, teaching Introduction to Economics and Investment Evaluation at the undergraduate level. His research interests include Textual Analysis, Corporate Finance, and Machine Learning, and he has published extensively in international academic journals, including Finance Research Letters, Manchester School, and Journal of Financial Data Science.