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Deposit Rate Advantages at the Largest Banks

Stefan Jacewitz () and Jonathan Pogach ()
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Stefan Jacewitz: Federal Deposit Insurance Corporation
Jonathan Pogach: Federal Deposit Insurance Corporation

Journal of Financial Services Research, 2018, vol. 53, issue 1, 1-35

Abstract: Abstract We estimate differences in funding costs between the largest banks and the rest of the industry in the United States. Using a novel data set on deposit rates offered at the branch level, we document significant pricing advantages at the largest banks on comparable deposit products and deposit risk premiums. Between 2007 and 2008, the risk premium paid by the largest banks was 35 bps lower than the risk premium at other banks. This difference vanishes following a regulatory change in the deposit limit. These findings are consistent with a significant too-big-to-fail subsidy captured by the largest banks through lower risk premiums on uninsured deposits.

Keywords: Too big to fail; Risk premium; Deposits; Interest rates (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:kap:jfsres:v:53:y:2018:i:1:d:10.1007_s10693-016-0261-2