BAFI Research Seminar

Banks' Internal Capital Markets and Deposit Rates

 

A common belief is that deposit rates are determined primarliy by supply:  depositors require higher deposit rates from risky banks and hence create market discipline.  An alternative mechanism is that market disciple is weak (potentially due to deposit insurance) and that internal demand for funding by banks determines rates.  Using branch-level deposit rate data, we find no evidence for market disciple: rates are similar across bank capitalization levels.  In contrast, banks' internal capital demand appears to be a dominant factor in determining deposit rates.  We show that banks' loan growth has a causal effect on deposit rates: e.g., branches' rates are correlated with their state-level loan growth in states in which their bank has presence.  Our results imply that market discipline is not in effect since deposit rates are determined by demand, rather than by supply-side forces.


Fee: [Yes/No/Varies]

Contact Information:
Tedda Nathan
Dept. of Banking & Finance
txn2@case.edu
216-368-2040
216-368-6249

 

Friday, Nov. 22, 2013 from 10:30 a.m. to noon
03 Peter B. Lewis Building
11119 Bellflower Road
Cleveland, OH 44106-7235
United States
Speaker(s): Itzhak Ben-David - Ohio State Un

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