Unintended Consequences of Unemployment Insurance Benefits: The Role of Banks

Yavuz Arslan, Ahmet Degerli () and Gazi Kabaş
Additional contact information
Ahmet Degerli: https://www.federalreserve.gov/econres/ahmet-degerli.htm

No 2021-027, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We use disaggregated U.S. data and a border discontinuity design to show that more generous unemployment insurance (UI) policies lower bank deposits. We test several channels that could explain this decline and find evidence consistent with households lowering their precautionary savings. Since deposits are the largest and most stable source of funding for banks, the decrease in deposits affects bank lending. Banks that raise deposits in states with generous UI policies squeeze their small business lending. Furthermore, counties that are served by these banks experience a higher unemployment rate and lower wage growth.

Keywords: Bank funding; Bank lending; Labor; precautionary savings; Unemployment insurance (search for similar items in EconPapers)
JEL-codes: D14 G21 J20 J65 (search for similar items in EconPapers)
Pages: 68 p.
Date: 2021-04-30
New Economics Papers: this item is included in nep-ban, nep-fdg, nep-ias and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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https://www.federalreserve.gov/econres/feds/files/2021027pap.pdf (application/pdf)

Related works:
Working Paper: Unintended consequences of unemployment insurance benefits: The role of banks (2024)
Working Paper: Unintended consequences of unemployment insurance benefits: the role of banks (2019)
Working Paper: Unintended Consequences of Unemployment Insurance Benefits: The Role of Banks (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2021-27

DOI: 10.17016/FEDS.2021.027

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