Bank Deposits and the Stock Market
Review of Financial Studies, Forthcoming
55 Pages Posted: 15 Jun 2017 Last revised: 22 Apr 2019
Date Written: April 18, 2019
I show that households' demand for retail deposits decreases during stock market booms, which induces a contraction in bank lending and a decrease in real activity at bank-dependent firms. I identify this channel using geographic heterogeneity in households' stock market participation. Banks in areas with greater stock ownership see a greater reduction in deposit growth when stock returns are high. This holds even across branches of the same bank, and across zip codes within counties. Counties served by banks financed by more stock-active depositors see a greater decline in bank lending and bank-dependent-firm employment following high stock returns.
Keywords: Deposits, loans, stock market, returns, sentiment, employment, real effects, banks
JEL Classification: G21, G11, G40
Suggested Citation: Suggested Citation