Deposit Market Competition, Wholesale Funding, and Bank Risk
European Banking Center Discussion Paper No. 2010-17S
CentER Discussion Paper Series No. 2010-65S
34 Pages Posted: 7 Jul 2010
There are 2 versions of this paper
Deposit Market Competition, Wholesale Funding, and Bank Risk
Deposit Market Competition, Wholesale Funding and Bank Risk
Date Written: July 6, 2010
Abstract
In this paper we revisit the long debate on the risk effects of bank competition and propose a new approach to the empirical estimation of the relation between deposit market competition and bank risk. Our approach accounts for the opportunity of banks to shift to wholesale funding when deposit market competition is intense. The analysis is based on a unique comprehensive dataset which combines retail deposit rates data with data on bank characteristics and with data on local deposit market features for a sample of 589 U.S. banks. Our results support the notion of a risk-enhancing effect of deposit market competition.
Keywords: bank competition, wholesale funding, bank risk, deposit rates
JEL Classification: G21
Suggested Citation: Suggested Citation