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Valuing Core Deposits

Listed author(s):
  • Richard Sheehan

    ()

While the financial crisis has brought to the fore valuation of bank assets, equally important to a bank’s long-term health is the quality of its deposits. This paper employs bank-specific data on total and retained balances to value so-called core deposits: checking and savings and money market accounts. The empirical results indicate that core deposits have considerable value to financial institutions, often dramatically more than regulators have allowed. The empirical results also indicate that the value of core deposits varies substantially by institution. For some institutions the value of core deposits approaches the total value of the institution. I am grateful to Rob Battalio, Tom Cosimano, Dave Hutchison, Bill McGuire and seminar participants at the University of Notre Dame for their comments on earlier drafts. I am particularly grateful to an anonymous referee whose suggestions substantially improved the paper. Any remaining limitations are entirely my responsibility. Copyright Springer Science+Business Media, LLC 2013

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File URL: http://hdl.handle.net/10.1007/s10693-012-0130-6
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Article provided by Springer & Western Finance Association in its journal Journal of Financial Services Research.

Volume (Year): 43 (2013)
Issue (Month): 2 (April)
Pages: 197-220

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Handle: RePEc:kap:jfsres:v:43:y:2013:i:2:p:197-220
DOI: 10.1007/s10693-012-0130-6
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Web page: http://westernfinance.org/

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  1. Flannery, Mark J & James, Christopher M, 1984. "Market Evidence on the Effective Maturity of Bank Assets and Liabilities," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 16(4), pages 435-445, November.
  2. Diebold, Francis X & Sharpe, Steven A, 1990. "Post-deregulation Bank-Deposit-Rate Pricing: The Multivariate Dynamics," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(3), pages 281-291, July.
  3. Richard Rosen, 2002. "What Goes Up Must Come Down? Asymmetries and Persistence in Bank Deposit Rates," Journal of Financial Services Research, Springer;Western Finance Association, vol. 21(3), pages 173-193, June.
  4. David Neumark & Steven A. Sharpe, 1992. "Market Structure and the Nature of Price Rigidity: Evidence from the Market for Consumer Deposits," The Quarterly Journal of Economics, Oxford University Press, vol. 107(2), pages 657-680.
  5. Bhattacharya, Sudipto & Boot, Arnoud W A & Thakor, Anjan V, 1998. "The Economics of Bank Regulation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(4), pages 745-770, November.
  6. Hutchison, David E, 1995. "Retail Bank Deposit Pricing: An Intertemporal Asset Pricing Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(1), pages 217-231, February.
  7. De Graeve, Ferre & De Jonghe, Olivier & Vennet, Rudi Vander, 2007. "Competition, transmission and bank pricing policies: Evidence from Belgian loan and deposit markets," Journal of Banking & Finance, Elsevier, vol. 31(1), pages 259-278, January.
  8. Ana-Maria Fuertes & Shelagh Heffernan & Elena Kalotychou, 2010. "How do UK Banks React to Changing Central Bank Rates?," Journal of Financial Services Research, Springer;Western Finance Association, vol. 37(2), pages 99-130, June.
  9. Hutchison, David E. & Pennacchi, George G., 1996. "Measuring Rents and Interest Rate Risk in Imperfect Financial Markets: The Case of Retail Bank Deposits," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 31(03), pages 399-417, September.
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