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Exploiting old customers and attracting new ones: The case of bank deposit pricing

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  • Carbo-Valverde, Santiago
  • Hannan, Timothy H.
  • Rodriguez-Fernandez, Francisco

Abstract

Recent theoretical contributions suggest that deposit interest rates should be higher in geographic areas characterized by greater in-migration and lower for depositors at banks with greater shares of existing (or so-called “locked-in”) depositors. These hypotheses are tested using a rich data set obtained for the Spanish banking industry. Results confirm that, all else equal, banks offer higher deposit rates in territories characterized by greater in-migration, and also that they tend to offer lower rates, the larger the number of their locked-in depositors. These findings confirm the existence of the trade-off between exploiting old customers and attracting new ones.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 55 (2011)
Issue (Month): 7 ()
Pages: 903-915

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Handle: RePEc:eee:eecrev:v:55:y:2011:i:7:p:903-915

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Web page: http://www.elsevier.com/locate/eer

Related research

Keywords: Deposit pricing; In-migration; Locked-in customers;

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Cited by:
  1. John Ashton & Andros Gregoriou & Jerome V. Healy, 2013. "The relative influence of price and choice factors on retail deposit quantities," Working Papers 13006, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
  2. Zhao, Tianshu & Matthews, Kent & Murinde, Victor, 2011. "Cross-Selling, Switching Costs and Imperfect Competition in British Banks," Cardiff Economics Working Papers E2011/29, Cardiff University, Cardiff Business School, Economics Section.
  3. Anderson, Robert D.J. & Ashton, John K. & Hudson, Robert S., 2014. "The influence of product age on pricing decisions: An examination of bank deposit interest rate setting," Journal of International Financial Markets, Institutions and Money, Elsevier, Elsevier, vol. 31(C), pages 216-230.
  4. Frank Strobel, 2014. "Bank Insolvency Risk and Z-Score Measures: A Refinement," Discussion Papers, Department of Economics, University of Birmingham 14-06, Department of Economics, University of Birmingham.
  5. Brown, Martin & Guin, Benjamin & Morkoetter, Stefan, 2013. "Switching Costs, Deposit Insurance and Deposit Withdrawals from Distressed Banks," Working Papers on Finance 1319, University of St. Gallen, School of Finance.
  6. Efthymios G. Tsionas, 2014. "On modeling banking risk," Working Papers 183, Bank of Greece.

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