Comparisons of deposit types and implications of the financial crisis: Evidence for U.S. banks

Glass, Anthony J; Kenjegaliev, Amangeldi; Kenjegalieva, Karligash

Abstract

This paper makes three diverse contributions. First, whereas the extant literature estimates a single elasticity of substitution/complementarity from an input distance function, we calculate a range of elasticities. Second, we make a substantive contribution to the literature on bank input substitution/complementarity because somewhat surprisingly there has been very little work on this issue. Third, our analysis of the substitutability/complementarity of deposit types for U.S. banks in 2008 2015 (crisis and beyond), vis-à-vis 1992 2007 (pre-crisis), is, to the best of our knowledge, the first to consider the effect of structural change on elasticities of substitution/complementarity. To account for the extent of the heterogeneity in the U.S. banking industry we estimate random coefficients models, as opposed to standard fixed parameter models. The key empirical findings are the changes in the substitutability/complementarity of the quantities of particular pairs of deposit types between the two sample periods, which points to changes in depositors' preferences across banks' deposit portfolios. To illustrate, for savings deposits, which are characterized by flexibility and liquidity, and time deposits, which are less so and thus have higher interest rates, we find significantly lower quantity complementarity in 2008 - 2015. From this finding we can conclude that savings and time deposits have become more distinct, which we suggest should be reflected in banks' strategic management of their deposit portfolios.

Citation

Glass, A. J., Kenjegaliev, A., & Kenjegalieva, K. (2022). Comparisons of deposit types and implications of the financial crisis: Evidence for U.S. banks. International journal of finance & economics : IJFE, 27(1), 641-664. https://doi.org/10.1002/ijfe.2172

• Journal Article Type: Article
• Acceptance Date: Jun 18, 2020
• Online Publication Date: Aug 3, 2020
• Publication Date: 2022-01
• Deposit Date: Sep 4, 2020
• Publicly Available Date: Sep 4, 2020
• Journal: International Journal of Finance and Economics
• Print ISSN: 1076-9307
• Electronic ISSN: 1099-1158
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• Volume: 27
• Issue: 1
• Pages: 641-664
• DOI: https://doi.org/10.1002/ijfe.2172
• Keywords: Input substitution/complementarity; Deposit types; Financial crisis; US banks; Bank strategy and decision-making
• Public URL: https://hull-repository.worktribe.com/output/3525018
• Publisher URL: https://onlinelibrary.wiley.com/doi/10.1002/ijfe.2172