Deposit Rate Advantages at the Largest Banks

43 Pages Posted: 20 Aug 2014

See all articles by Stefan Jacewitz

Stefan Jacewitz

FDIC, Division of Insurance and Research

Jonathan Pogach

FDIC, Division of Insurance and Research

Date Written: November 2011

Abstract

We estimate differences in funding costs between the largest banks and the rest of the industry. Using deposit rates offered at the branch level, we eliminate many non-risk-related differences between banks. We document significant and persistent pricing advantages at the largest banks for comparable deposit products and deposit risk premiums. Between 2007 and 2008, the risk premium paid by the largest banks was 39 bps lower than the risk premium at other banks under the baseline estimate after controlling for common risk variables. These findings are consistent with an economically significant too-big-to-fail subsidy paid to the largest banks through lower risk premiums on uninsured deposits.

Keywords: Too big to fail; Risk premium; Deposits; Interest rates

JEL Classification: G21, G28, H81

Suggested Citation

Jacewitz, Stefan and Pogach, Jonathan, Deposit Rate Advantages at the Largest Banks (November 2011). FDIC Division of Insurance Research Paper No. 2014-02. Available at SSRN: https://ssrn.com/abstract=2482352 or http://dx.doi.org/10.2139/ssrn.2482352

Stefan Jacewitz (Contact Author)

FDIC, Division of Insurance and Research ( email )

550 17th Street NW
Washington, DC 20429
United States

Jonathan Pogach

FDIC, Division of Insurance and Research ( email )

550 17th Street NW
Washington, DC 20429
United States

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