45 Pages Posted: 8 Feb 2012 Last revised: 7 Nov 2014
Date Written: November 7, 2014
Banks face a 'behavioralization' of their balance sheets since deposit funding increasingly consists of non-maturing deposits with uncertain cash flows exposing banks to asset liability (ALM) risk. Thus, this study examines the behavior of banks’ retail customers regarding non-maturing deposits. Our unique sample comprises the contract and cash flow data for 2.2 million individual contracts from 1991 to 2010. We find that contractual rewards, i.e., qualified interest payments, and government subsidies, effectively stabilize saving behavior and thus bank funding. The probability of an early deposit withdrawal decreases by approximately 40%, and cash flow volatility drops by about 25%. Our findings provide important insights for banks using pricing incentives to steer desired saving patterns for their non-maturing deposit portfolios. Finally, these results are informative regarding the bank liquidity regulations (Basel III) concerning the stability of deposits and the minimum requirements for risk management (European Commission DIRECTIVE 2006/48/EC).
Keywords: retail saving behavior, non-maturing deposits, deposit funding, contractual rewards, interest rate bonus, saving persistence, cash flow volatility
JEL Classification: G01, G21, G28
Suggested Citation: Suggested Citation
Schlueter, Tobias and Sievers, Soenke and Hartmann-Wendels, Thomas, Bank Funding Stability - Pricing Strategies and the Guidance of Depositors (November 7, 2014). Journal of Banking and Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2001449 or http://dx.doi.org/10.2139/ssrn.2001449