part of the pesified loans, changes in the corporate bankruptcy code, a series of court rulings on "amparos" regarding deposit freeze, etc.).

In the next section we abstract from the stream of ill-advised measures that followed the collapse of convertibility to examine in some detail the salient features of the depositor run that precipitated the collapse.

# _2.3._ **_Meltdown: currency and deposit run_**

Understanding the nature of the bank run in Argentina is essential to answering key questions regarding alternative paths to exit convertibility. Could a different exit strategy have enabled the authorities to preserve, and capitalize on, the high quality of the banking system and its regulatory framework, including the large presence of foreign banks? Was the "corralito" a coarse measure mainly aimed at saving the few (mostly public) banks with significant fiscal exposures that were suffering large deposit withdrawals? If so, was the "corralito" a vehicle through which the government exported the crisis to otherwise liquid institutions, leading in the process to a currency run that made the abandonment of convertibility inevitable? Or was the "corralito" rather the consequence of a run on the banking system? What triggered the run, perceived currency risk, perceived country risk, or both? What was behind the run is ultimately an empirical question, to which we now turn.

To better identify the factors that fueled the run, we compiled a rich bank-level dataset on deposits that distinguishes both across currencies (peso and dollar), as well as deposit type (demand, savings, and time). We also use banks' balance sheet data to control for bank-specific fundamentals. We analyze the top 50 banks, which accounted for 98 percent of total private deposits as of December 2000. Our empirical analysis supports the view that it was the rising perception of currency risk that generated a run on the currency, illustrated by a shift from peso to dollar deposits between February 2001 and July-August 2001, which evolved into a run on bank deposits regardless of currency of denomination or bank characteristics, probably out of increasing fears that a major devaluation could lead to bank failures and some form of deposit confiscation.<sup>2 9</sup> Figures 7 and 8 show the evolution of deposits and of the currency premium over time. Regarding demand and savings deposits, while dollar deposits remained stable, even increasing up to the end of 2001, peso deposits started to decline after February 2001. The pattern is more salient in the case of time deposits, with dollar deposits steadily increasing until the second semester of 2001.

> The December 2000-November 2001 deposit withdrawal was not just focused on few banks or on certain types of banks (Figure 9). It spread to almost all banks as the crisis progressed.<sup>30</sup> By November 2001, 47 of the top 50 banks had suffered withdrawals

**29** In this regard, the 2001 run presents a striking similarity with the post-Tequila crisis, both in terms of the displayed symptoms as well as the underlying drivers.

30 Banks differed, however, in their level of liquidity. Towards the end of 2001, as the deposit run intensified, the government put pressure on the most liquid private banks to re-circulate their liquidity 12