The Deposit Business at Large vs. Small Banks

Adrien d'Avernas, Andrea Eisfeldt, Can Huang, Richard Stanton and Nancy Wallace

No 31865, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The deposit business differs at large versus small banks. We provide a parsimonious model and extensive empirical evidence supporting the idea that much of the variation in deposit-pricing behavior between large and small banks reflects differences in "preferences and technologies." Large banks offer superior liquidity services but lower deposit rates, and locate where customers value their services. In addition to receiving a lower level of deposit rates on average, customers of large banks exhibit lower demand elasticities with respect to deposit rate spreads. As a result, despite the fact that the locations of large-bank branches have demographics typically associated with greater financial sophistication, large-bank customers earn lower average deposit rates. Our explanation for deposit pricing behavior challenges the idea that deposit pricing is mainly driven by pricing power derived from the large observed degree of concentration in the banking industry.

JEL-codes: E0 E40 E44 G0 G2 G21 G28 (search for similar items in EconPapers)
Date: 2023-11
New Economics Papers: this item is included in nep-ban, nep-fdg and nep-mac
Note: AP CF EFG
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