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Deposit pricing under credit stress: Business-model heterogeneity and threshold effects

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  • You, Jaeweon
  • Noh, Yoocheol

Abstract

Using a novel Korean institution-level dataset on deposit interest rate spreads, we investigate how depository institutions’ business models interact with market-wide funding stress to shape deposit-rate competition. On average, institutions with larger deposit shares raise deposit spreads less, whereas loan-intensive institutions adjust more aggressively. However, these relationships are strongly state-dependent. When interacted with the credit spread, the dampening effect of deposit richness weakens and turns positive once credit spreads move into stress-level territory. In the same high-stress regime, the pro-competitive effect of loan intensity attenuates and eventually reverses. This pattern suggests that the impact of bank business models on deposit-rate competition is highly contingent on funding stress, underscoring the importance of balance-sheet-aware macroprudential design.

Suggested Citation

  • You, Jaeweon & Noh, Yoocheol, 2026. "Deposit pricing under credit stress: Business-model heterogeneity and threshold effects," Finance Research Letters, Elsevier, vol. 87(C).
    • Handle: RePEc:eee:finlet:v:87:y:2026:i:c:s1544612325022512
    DOI: 10.1016/j.frl.2025.108998
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    Keywords

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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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