Peer effects in deposit markets

Kim Fe Cramer and Naz Koont

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We provide first empirical evidence that consumer peer effects matter for banks' deposit demand. Using a novel measure that depicts for each county how exposed peers are to a specific bank in a given year, we tightly identify the causal effect of peer exposure on deposit demand through a fixed effects identification strategy. We address key empirical challenges such as time-invariant homophily. We find that a one percent increase in a bank's peer exposure leads to a 0.05 percent increase in deposit market share. This effect has become stronger over time with the rise of the internet and social media, which facilitate cross-county communication. Peer exposure is especially relevant for smaller banks and customers that have access to the internet.

Keywords: deposit demand; peer effects; banking (search for similar items in EconPapers)
JEL-codes: G21 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2021-09-25
New Economics Papers: this item is included in nep-net, nep-pay and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:119192

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