Do High Deposit Interest Rates Signal Bank Default? Evidence from the Russian Retail Deposit Market

28 Pages Posted: 7 Jun 2018

See all articles by Maria Bondarenko

Maria Bondarenko

National Research University Higher School of Economics

Maria Semenova

National Research University Higher School of Economics

Date Written: June 7, 2018

Abstract

In recent years the Russian banking system has witnessed numerous bank license withdrawals. Many of the failed banks had significant volumes of retail deposits in their liabilities, thus, transmitting the default burden to the Deposit Insurance Agency and ultimately to the taxpayers. In their attempt to stay in the market banks may try to attract the depositor funds even more intensively when the failure is not far away. The main assumption of this paper is that banks raise additional funds through inflated deposit interest rates – the overstatement strategy – before leaving the market. We use unique data on Russian bank deposit interest rates for deposits of different maturities in 2015–2016 combined with data about bank fundamentals coming from their financial statements. The results suggest that if a bank offers too generous interest rates for deposits for 180-365 days this can be a signal of a significantly higher probability of license withdrawal in 3 quarters. In their attempt to urgently attract funds when moving closer to default banks assign the highest rates for the longest-term deposits, with the maturity over one year. The interest rates higher than the market average dramatically increase the probability of a bank failure in 2 quarters.

Keywords: Bank failure, Deposit interest rates, Market discipline, Personal deposits, Russia

JEL Classification: G21, G01, P2

Suggested Citation

Bondarenko, Maria and Semenova, Maria, Do High Deposit Interest Rates Signal Bank Default? Evidence from the Russian Retail Deposit Market (June 7, 2018). Higher School of Economics Research Paper No. WP BRP 65/FE/2018, Available at SSRN: https://ssrn.com/abstract=3192481 or http://dx.doi.org/10.2139/ssrn.3192481

Maria Bondarenko

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

Maria Semenova (Contact Author)

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
21
Abstract Views
381
PlumX Metrics