Are Risky Banks Rationed by Corporate Depositors?

47 Pages Posted: 21 Feb 2017 Last revised: 16 Nov 2018

See all articles by Daniel Friedmann

Daniel Friedmann

Goethe University Frankfurt

Björn Imbierowicz

Deutsche Bundesbank - Research Centre

Anthony Saunders

New York University - Leonard N. Stern School of Business

Sascha Steffen

Frankfurt School of Finance & Management

Date Written: November 15, 2018

Abstract

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 the selection of firms of where to deposit is concave in bid interest rate in line with the notion of credit rationing 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

Friedmann, Daniel and Imbierowicz, Björn and Saunders, Anthony and Steffen, Sascha, Are Risky Banks Rationed by Corporate Depositors? (November 15, 2018). Available at SSRN: https://ssrn.com/abstract=2921091 or http://dx.doi.org/10.2139/ssrn.2921091

Daniel Friedmann

Goethe University Frankfurt ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

Björn Imbierowicz (Contact Author)

Deutsche Bundesbank - Research Centre ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Anthony Saunders

New York University - Leonard N. Stern School of Business ( email )

44 West 4th Street
9-190, MEC
New York, NY 10012-1126
United States
212-998-0711 (Phone)
212-995-4220 (Fax)

Sascha Steffen

Frankfurt School of Finance & Management ( email )

Adickesallee
32-34
Frankfurt, 60322
Germany
16097326929 (Phone)

HOME PAGE: http://www.sascha-steffen.de

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