Peer Pressure: How do Peer-to-Peer Lenders affect Banks' Cost of Deposits and Liability Structure?
42 Pages Posted: 14 Jun 2019
Date Written: June 4, 2019
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: Suggested Citation