Bank Advertising and Deposit Demand

Abstract

I provide the first empirical evidence that bank advertising impacts deposit volumes. Exploiting the geographical segmentation of the US local TV advertisement market, I document that increased advertising by a bank leads to greater branch-level deposits. The effect is economically significant, with a deposit elasticity to advertising spending of 0.04%, suggesting substantial returns on advertising. This impact is stronger in wealthier, more educated counties, and among smaller banks, consistent with advertising raising consumer awareness and reducing search frictions in the deposit market. At the aggregate level, bank advertising contributes to the overall expansion of the deposit market.

Keywords: Deposit Demand, Advertising, Banking, Information Frictions

JEL Classification: G21, M37, D83