Do Deposit Rates Show Evidence of Too Big to Fail Effects?

37 Pages Posted: 24 Mar 2014

Date Written: March 22, 2014


We contribute to the research on the measurement of “too big to fail” (TBTF) effects by examining differences in deposit funding costs between the largest US banks and the rest of the industry. We apply the approach pioneered by Stefan Jacewitz and Jonathan Pogach in their recent working paper, “Deposit Rate Advantages at the Largest Banks,” to analyze US branch-level deposit rate data for money market deposit accounts (MMDAs) from 2006-2012. Prior to 2008, we observe a large bank funding cost advantage on deposits not fully insured by the FDIC, after controlling for common risk variables. In the post-crisis period, we find that this advantage declined by approximately 90%, reaching just 4 bps by the end of 2012. Further, we find evidence that this measured advantage is related to factors other than TBTF perceptions. Our findings are consistent with the premise that post-crisis US policy changes meant to combat TBTF have been effective to a substantial degree.

Keywords: financial institutions, too big to fail, TBTF, banking, deposits, interest rates

Suggested Citation

Kumar, Aditi and Lester, John, Do Deposit Rates Show Evidence of Too Big to Fail Effects? (March 22, 2014). Available at SSRN: or

Aditi Kumar (Contact Author)

Oliver Wyman ( email )

1166 Ave of Americas
29 fl
New York, NY 10036
United States

John Lester

Oliver Wyman ( email )

1166 Avenue of the Americas
29th Fl
New York, NY 30016
United States

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