Are Risky Banks Rationed by Corporate Depositors?
55 Pages Posted: 21 Feb 2017 Last revised: 25 Apr 2019
Date Written: April 24, 2019
We analyze auctions of unsecured money market deposits of firms to banks via a FinTech intermediary. In each auction, only the firm observes the banks and their interest rate bids and decides where to deposit its funds. We observe that deposit interest rate bids increase monotonically with banks’ risk and that firms in general prefer higher deposit interest rates. However, our results show that firms’ selection of banks in which to deposit is concave in the bid interest rate in line with the general notion of credit rationing as modeled in Stiglitz and Weiss (1981). We find this confirmed on the intensive as well as on the extensive margin. Risky banks eventually exit the market, and re-enter when their risk decreases again in the long term. Relatedly, we observe that risky banks exit when the interest rate they have to offer increases above the interest rate charged by the central bank. This has important implications for banks’ access to unsecured corporate funding, central bank liquidity provision and the understanding of deposit markets as well as FinTech in general.
Keywords: Auctions, Corporate Deposits, Rationing
JEL Classification: D44, D45, G21, G32
Suggested Citation: Suggested Citation