FATCA and CRS: From confidence to distrust, a slippery slope towards a banking panic

Abstract

The announcement of the adoption of the bill on the automatic exchange of financial and tax information with OECD countries is causing panic among foreign residents. This article analyses the impact of FATCA and the CRS on mass withdrawals by foreign residents and their role in causing banking panics. Banking panics often occur when a series of runs on banks facing liquidity problems leads to the collapse of the banking system. Through a review of the literature and empirical studies on banking panics, we have identified the reactions of the adoption of these treaties on the massive withdrawals of deposits, and consequently, the loss of confidence linked to the automatic disclosure of banking information of foreign residents in their host country.

Keywords: Banking panic, Bank run, financial institution, Trust, FATCA & CRS

JEL Classification : D82, E44, G21, G28.

Paper type : Theoretical Research