The Making of an Alert Depositor: How Payment and Interest Drive Deposit Dynamics

54 Pages Posted: 8 Feb 2024 Last revised: 23 May 2024

See all articles by Xu Lu

Xu Lu

University of Washington - Michael G. Foster School of Business

Yang Song

University of Washington - Michael G. Foster School of Business

Yao Zeng

University of Pennsylvania - The Wharton School

Date Written: January 17, 2024

Abstract

Are depositors sleepy? We challenge the traditional view of depositor sleepiness by introducing a new notion, depositor alertness, and find supporting evidence leveraging transaction-level data from over a million U.S. depositors across major U.S. banks. Depositors shift their deposits across bank accounts more actively when the payment technology linked to their accounts is more efficient, which we define as the payment channel. Furthermore, depositors facing higher payment frictions are also more attuned to interest rate risk and shift their deposits more actively, which we define as the interest risk channel. Depositor alertness is particularly pronounced during periods of rate hikes but diminishes when rates fall. We further draw causal evidence using a novel instrument: the exogenous exposure to fast payment technologies reduces transfer frictions, which consequently heightens depositor alertness. Our findings have significant policy implications, highlighting the impact of depositor behavior on bank funding costs and risks, especially amidst rapid developments in new payment technologies and during times of monetary tightening.

Keywords: deposits, payment, banking, monetary transmission

JEL Classification: E42, E43, G21

Suggested Citation

Lu, Xu and Song, Yang and Zeng, Yao, The Making of an Alert Depositor: How Payment and Interest Drive Deposit Dynamics (January 17, 2024). Jacobs Levy Equity Management Center for Quantitative Financial Research Paper , The Wharton School Research Paper, Available at SSRN: https://ssrn.com/abstract=4699426 or http://dx.doi.org/10.2139/ssrn.4699426

Xu Lu (Contact Author)

University of Washington - Michael G. Foster School of Business ( email )

Seattle, WA 98195
United States

Yang Song

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States

Yao Zeng

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

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

Paper statistics

Downloads
101
Abstract Views
410
Rank
486,710
PlumX Metrics