Peer Effects in Deposit Markets

47 Pages Posted: 28 Sep 2021 Last revised: 3 Nov 2021

See all articles by Kim Fe Cramer

Kim Fe Cramer

Columbia University - Columbia Business School

Naz Koont

Columbia University - Columbia Business School

Date Written: September 25, 2021

Abstract

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

Cramer, Kim Fe and Koont, Naz, Peer Effects in Deposit Markets (September 25, 2021). Available at SSRN: https://ssrn.com/abstract=3930699 or http://dx.doi.org/10.2139/ssrn.3930699

Kim Fe Cramer (Contact Author)

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

HOME PAGE: http://www.kimfecramer.com

Naz Koont

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

HOME PAGE: http://www.nazkoont.com

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