Modeling the Whole Firm: The Effect of Multiple Inputs and Financial Intermediation on Bank Deposit Rates

46 Pages Posted: 11 Mar 2004

See all articles by Elizabeth K. Kiser

Elizabeth K. Kiser

Board of Governors of the Federal Reserve System

Multiple version iconThere are 2 versions of this paper

Date Written: June 3, 2003

Abstract

Empirical studies of price competition typically analyze the direct effects of market structure, cost, and local demand on prices; this approach has been applied widely to studies of bank deposit rates. However, the theory of the banking firm suggests that substitutability between sources of deposits and conditions in the bank loan market should also affect the pricing of retail deposits. This paper develops a theoretical model to incorporate these effects, and tests the predictions empirically using institution-level deposit rate data from Bank Rate Monitor. The results suggest that the cost of large-scale deposits affects how banks price retail deposits, and that conditions in lending markets feed back into retail deposit rates.

Keywords: Financial intermediation, deposit rates

JEL Classification: L0, G2

Suggested Citation

Kiser, Elizabeth K., Modeling the Whole Firm: The Effect of Multiple Inputs and Financial Intermediation on Bank Deposit Rates (June 3, 2003). Available at SSRN: https://ssrn.com/abstract=515863 or http://dx.doi.org/10.2139/ssrn.515863

Elizabeth K. Kiser (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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

Paper statistics

Downloads
400
Abstract Views
1,923
Rank
139,323
PlumX Metrics