The Deposit Business at Large vs. Small Banks

53 Pages Posted: 17 Nov 2023 Last revised: 5 Apr 2024

See all articles by Adrien d'Avernas

Adrien d'Avernas

Swedish House of Finance

Andrea L. Eisfeldt

UCLA Anderson School of Management

Can Huang

University of Illinois at Urbana-Champaign - Department of Finance

Richard Stanton

University of California, Berkeley

Nancy Wallace

University of California, Berkeley - Real Estate Group

Date Written: October 19, 2023

Abstract

We provide a parsimonious model and extensive empirical evidence supporting the idea that much of the variation in deposit-pricing behavior across large vs. small banks reflects differences in ``preferences and technologies''. Large banks offer superior liquidity services, but lower deposit rates, and locate where customers value their services. In addition to receiving a lower level of deposit rates on average, customers of large banks exhibit lower demand elasticities with respect to deposit rate spreads. As a result, despite the fact that the locations of large-bank branches have demographics typically associated with greater financial sophistication, large-bank customers earn lower average deposit rates. Our explanation for deposit pricing behavior challenges the idea that deposit pricing is mainly driven by pricing power derived from the large observed degree of concentration in the banking industry.

JEL Classification: G21

Suggested Citation

d'Avernas, Adrien and Eisfeldt, Andrea L. and Huang, Can and Stanton, Richard and Wallace, Nancy E., The Deposit Business at Large vs. Small Banks (October 19, 2023). Available at SSRN: https://ssrn.com/abstract=4607440 or http://dx.doi.org/10.2139/ssrn.4607440

Adrien D'Avernas (Contact Author)

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

Andrea L. Eisfeldt

UCLA Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

HOME PAGE: http://https://sites.google.com/site/andrealeisfeldt/

Can Huang

University of Illinois at Urbana-Champaign - Department of Finance ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

Richard Stanton

University of California, Berkeley ( email )

CA
United States

Nancy E. Wallace

University of California, Berkeley - Real Estate Group ( email )

Berkeley, CA 94720-1900
United States

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