Bank Deposit Rate Clustering: Theory and Empirical Evidence
AbstractLike security prices, retail deposit interest rates cluster around integers and "even" fractions. However, explanations for security price clustering are incompatible with deposit rate clustering. A theory based on the limited recall of retail depositors is proposed. It predicts that banks tend to set rates at integers and that rates are "sticky" at these levels. The propensity for integer rates increases with the level of wholesale interest rates and deposit market concentration. When banks set noninteger rates, rates are more likely to be just above, rather than just below, integers. The paper finds substantial empirical support for the theory's implications. Copyright The American Finance Association 1999.
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Bibliographic InfoArticle provided by American Finance Association in its journal The Journal of Finance.
Volume (Year): 54 (1999)
Issue (Month): 6 (December)
Other versions of this item:
- Charles Kahn & George Pennacchi & Ben Sopranzetti, 1996. "Bank deposit rate clustering: theory and empirical evidence," Working Paper 9604, Federal Reserve Bank of Cleveland.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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