Dynamic Competition for Sleepy Deposits

Mark L. Egan, Ali Hortaçsu, Nathan A. Kaplan, Adi Sunderam and Vincent Yao

No 34267, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We examine how “sleepy deposits” affect competition, bank value, and financial stability. Using novel data on account openings and closures at over 900 banks, we show that only 5–15% of depositors open new accounts per year. More closures are driven by moving or death than rate-shopping. We develop an empirical model in which banks face dynamic invest-versus-harvest incentives. We find that depositor sleepiness accounts for 57% of average deposit franchise value, softening competition particularly for banks in low-concentration markets and banks with low-quality services. Sleepiness also enhances financial stability and significantly reduced default probabilities during the 2023 banking turmoil.

JEL-codes: G0 G21 L0 (search for similar items in EconPapers)
Date: 2025-09
New Economics Papers: this item is included in nep-com, nep-fdg and nep-pay
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