Unintended Consequences of Unemployment Insurance Benefits: The Role of Banks

68 Pages Posted: 14 May 2021 Last revised: 30 Jun 2021

See all articles by Yavuz Arslan

Yavuz Arslan

University of Liverpool Management School

Ahmet Degerli

Board of Governors of the Federal Reserve System

Gazi Kabas

University of Zurich - Department of Banking and Finance; Swiss Finance Institute

Multiple version iconThere are 3 versions of this paper

Date Written: April 1, 2021

Abstract

We use disaggregated U.S. data and a border discontinuity design to show that more generous unemployment insurance (UI) policies lower bank deposits. We test several channels that could explain this decline and find evidence consistent with households lowering their precautionary savings. Since deposits are the largest and most stable source of funding for banks, the decrease in deposits affects bank lending. Banks that raise deposits in states with generous UI policies squeeze their small business lending. Furthermore, counties that are served by these banks experience a higher unemployment rate and lower wage growth.

JEL Classification: D14, G21, J20, J65

Suggested Citation

Arslan, Yavuz and Degerli, Ahmet and Kabas, Gazi, Unintended Consequences of Unemployment Insurance Benefits: The Role of Banks (April 1, 2021). FEDS Working Paper No. 2021-027, Available at SSRN: https://ssrn.com/abstract=3845839 or http://dx.doi.org/10.17016/FEDS.2021.027

Yavuz Arslan (Contact Author)

University of Liverpool Management School ( email )

Ahmet Degerli

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Gazi Kabas

University of Zurich - Department of Banking and Finance ( email )

Sch├Ânberggasse 1
Z├╝rich, 8001
Switzerland

HOME PAGE: http://https://sites.google.com/view/gazikabas/home

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
27
Abstract Views
141
PlumX Metrics