Deposit Mobilization Through Financial Restraint
Graduate School of Business Research Paper No. 1354
Posted: 9 Jul 1998
Date Written: August 2002
This paper asks the question under what circumstances banks have incentives to increase the deposit collection, when the deposit market is not fully penetrated, i.e. when there is low financial depths. We compare outcomes under a perfectly competitive deposit market with outcomes under financial restraint, defined as a combination of deposit rate controls and restrictions on competition. In the first model we show that temporary exclusive rights may be an efficient way of inducing banks to open branches in new areas. In the second model we show that deposit rate controls can provide banks with stronger incentives to seek out new depositors, and thus to grow the deposit market.This paper represents the views of the authors and does not necessarily represent that of any organization with which they are or have been affiliated.
JEL Classification: G21, G28, O16
Suggested Citation: Suggested Citation