Deposits Market Exclusion and the Emergence of Premium Banks

Hayk Sargsyan, Aleksandr Grigoryan and Olivier Bruno
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Hayk Sargsyan: Universitat Pompeu Fabra
Aleksandr Grigoryan: SKEMA Business School, Université Côte d'Azur, France.
Olivier Bruno: Université Côte d'Azur, CNRS, GREDEG, SKEMA Business School, France

No 2025-10, GREDEG Working Papers from Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France

Abstract: In this paper we develop a model which explains exclusion from deposits market and the emergence of premium banks. Households' demand for deposits is modelled accounting for diversification motive and love for services. Market exclusion and the emergence of premium banks occur, if the diversification motive dominates. Too unequal distribution of income directed to deposits leads to the exclusion of poor from rich-serving banks' deposit product markets, resulting in higher markups and a lower level of total deposits. In the empirical part, we use a bank-branch level data and county level income inequality as a proxy for deposits inequality for the U.S. economy. We find supporting evidence for the main assumptions of the theoretical model, which are (i) price elasticities di er for rich and poor, (ii) premium banks set higher deposit prices, (iii) the likelihood of the emergence of premium banks increases in income inequality, and (iv) the total volume of deposits decreases in income inequality.

Keywords: Market exclusion; premium banks; deposit price; deposit-holdings inequality; non-homothetic preferences (search for similar items in EconPapers)
JEL-codes: D31 D43 E52 G21 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2025-04
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