Peer Effects in Deposit Markets
47 Pages Posted: 28 Sep 2021 Last revised: 3 Nov 2021
Date Written: September 25, 2021
We provide first empirical evidence that consumer peer effects matter for banks' deposit demand. Using a novel measure that depicts for each county how exposed peers are to a specific bank in a given year, we tightly identify the causal effect of peer exposure on deposit demand through a fixed effects identification strategy. We address key empirical challenges such as time-invariant homophily. We find that a one percent increase in a bank's peer exposure leads to a 0.05 percent increase in deposit market share. This effect has become stronger over time with the rise of the internet and social media, which facilitate cross-county communication. Peer exposure is especially relevant for smaller banks and customers that have access to the internet.
Keywords: Deposit Demand, Peer Effects, Banking
JEL Classification: G21, G41, G51
Suggested Citation: Suggested Citation