Are risky banks disciplined by large corporate depositors?

48 Pages Posted: 1 Mar 2021 Last revised: 15 Dec 2021

See all articles by Björn Imbierowicz

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: December 14, 2021

Abstract

We analyze auctions of unsecured money market deposits of firms to banks using unique micro-level data from a FinTech platform. 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 bank risk and that firms in general prefer higher deposit interest rates. However, our results show that firms’ selection of banks in which to deposit is concave in the bid interest rate, on the intensive as well as on the extensive margin. Risky banks eventually exit the market, and re-enter when they become safer. Risky banks exit when the interest rate they have to bid increases above central bank policy rates suggesting that central bank funding crowds out deposits thereby reducing monitoring by short-term creditors. This has important implications for banks’ access to unsecured corporate funding, financial stability and our understanding of market discipline more broadly.

Keywords: Auctions, Banks, Corporate deposits, Market discipline, Monetary policy

JEL Classification: D44, D45, G21, G32

Suggested Citation

Imbierowicz, Björn and Saunders, Anthony and Steffen, Sascha, Are risky banks disciplined by large corporate depositors? (December 14, 2021). Available at SSRN: https://ssrn.com/abstract=3760743 or http://dx.doi.org/10.2139/ssrn.3760743

Björn Imbierowicz

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 (Contact Author)

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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