Peer Pressure: How do Peer-to-Peer Lenders affect Banks' Cost of Deposits and Liability Structure?

42 Pages Posted: 14 Jun 2019

See all articles by Hisham Farag

Hisham Farag

University of Birmingham - Birmingham Business School

Santosh Koirala

University of Birmingham, Birmingham Business School

Danny McGowan

University of Birmingham

Date Written: June 4, 2019

Abstract

This paper shows that banks’ cost of deposits increase following exposure to the Fintech sector. We exploit the exogenous, staggered removal of restrictions on investing through peer-to-peer lending platforms by US states. The entry of Lending Club and Prosper cause the cost of deposits to increase by approximately 11% as banks face more intense competition for deposit funds. Banks’ liability structure also shifts towards greater reliance on non-deposit funding. The findings provide regulatory insights into the unintended consequences, and potentially destabilizing effects, of the nascent Fintech sector on the banking industry.

Keywords: Fintech, banking, deposits, liability structure

JEL Classification: D26, G21, G23

Suggested Citation

Farag, Hisham and Koirala, Santosh and McGowan, Danny, Peer Pressure: How do Peer-to-Peer Lenders affect Banks' Cost of Deposits and Liability Structure? (June 4, 2019). Available at SSRN: https://ssrn.com/abstract=3398843 or http://dx.doi.org/10.2139/ssrn.3398843

Hisham Farag

University of Birmingham - Birmingham Business School ( email )

Edgbaston Park Road
Birmingham, B15 2TY
United Kingdom

Santosh Koirala

University of Birmingham, Birmingham Business School ( email )

Edgbaston Park Road
Birmingham, B15 2TY
United Kingdom

Danny McGowan (Contact Author)

University of Birmingham ( email )

Edgbaston, Birmingham B15 2TT
United Kingdom

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