Deposit Flows and the January Effect in Deposit Rates

53 Pages Posted: 8 Dec 2019 Last revised: 27 Jan 2024

See all articles by Vladimir Kotomin

Vladimir Kotomin

Illinois State University - Department of Finance, Insurance and Law

Artem Meshcheryakov

San Jose State University

Date Written: December 11, 2023

Abstract

Noninterest-bearing deposits (NIBDs) flow out of US banks in January and February. Banks respond to this seasonal outflow by increasing interest-bearing deposit (IBD) rates. We document that branch-level deposit spreads are four to eleven basis points higher in January than in December. Increasing rates works as banks replace four-fifths of the lost NIBDs with IBDs. We also find that, following NIBD outflows, banks resist cutting lending; they do pass the increases in the cost of funds onto borrowers. However, banks do cut lending in response to total deposit outflows, but only in the pre-crisis period.

Keywords: Bank liquidity, January effect, Deposit pricing, Flow of funds

JEL Classification: G12, G21

Suggested Citation

Kotomin, Vladimir and Meshcheryakov, Artem, Deposit Flows and the January Effect in Deposit Rates (December 11, 2023). Available at SSRN: https://ssrn.com/abstract=3491403 or http://dx.doi.org/10.2139/ssrn.3491403

Vladimir Kotomin (Contact Author)

Illinois State University - Department of Finance, Insurance and Law ( email )

Normal, IL 61790
United States

Artem Meshcheryakov

San Jose State University ( email )

United States

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