Related bank deposits: Good or bad for stability?

Aldy Fariz Achsanta, Tastaftiyan Risfandy, Putra Pamungkas, Irwan Trinugroho () and Herman Saheruddin
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Aldy Fariz Achsanta: Universitas Sebelas Maret
Tastaftiyan Risfandy: Universitas Sebelas Maret
Putra Pamungkas: Universitas Sebelas Maret
Irwan Trinugroho: Universitas Sebelas Maret
Herman Saheruddin: Indonesia Deposit Insurance Corporation

Eurasian Economic Review, 2021, vol. 11, issue 4, No 7, 735-751

Abstract: Abstract This paper examined the impact of related deposit transactions on banks' risk-taking and financial stability by considering the ratio of related deposits over total deposits to capture banks' dependency on deposits from their related parties. Our sample consisted of 90 Indonesian banks and covered the period 2009–2019. Our finding showed that related bank deposits significantly increased the z-score. Our deeper investigation showed that the effect of related deposits when we split the sample based on size. We find that related deposits increase the z-score only for small banks. Our results provide insights and noteworthy policy implications for regulators to take into account related party transactions in deposits to have greater control over the behavior of bank's risk-taking and to maintain the soundness of the banks, and mitigate financial instability.

Keywords: Related bank deposits; Risk taking; Market power; Indonesia (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/s40822-021-00184-3

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