Deposit Flows and the January Effect in Deposit Rates
53 Pages Posted: 8 Dec 2019 Last revised: 27 Jan 2024
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: Suggested Citation