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Implicit Interest on Demand Deposits

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  • Richard Startz

Abstract

Traditionally, monetary theory assumes money bears zero interest. More recently, it has been recognized that banks implicitly pay interest through providing free services. In this paper, the implicit interest rate is estimated from two different sources. Implicit interest appears to be about one-half of what a competitive rate would be in the absence of the prohibition against explicit interest.

Suggested Citation

  • Richard Startz, "undated". "Implicit Interest on Demand Deposits," Rodney L. White Center for Financial Research Working Papers 4-79, Wharton School Rodney L. White Center for Financial Research.
    • Handle: RePEc:fth:pennfi:4-79
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    Cited by:

    1. Ryadh M. Alkhareif & William A. Barnett, 2012. "Divisia Monetary Aggregates for the GCC Countries," International Symposia in Economic Theory and Econometrics, in: Recent Developments in Alternative Finance: Empirical Assessments and Economic Implications, pages 1-37, Emerald Group Publishing Limited.
    2. Ngotran, Duong, 2016. "The E-Monetary Theory," MPRA Paper 77206, University Library of Munich, Germany, revised 25 Feb 2017.
    3. repec:zbw:bofrdp:1989_026 is not listed on IDEAS
    4. Douglas Evanoff & Lewis Segal, 1997. "Strategic Responses to Bank Regulation: Evidence From HMDA Data," Journal of Financial Services Research, Springer;Western Finance Association, vol. 11(1), pages 69-93, February.
    5. Drew Dahl & Douglas D. Evanoff & Michael F. Spivey, 2002. "Community Reinvestment Act Enforcement and Changes in Targeted Lending," International Regional Science Review, , vol. 25(3), pages 307-322, July.
    6. Tarkka, Juha, 1989. "Competitive deposit rates and bank service charges," Research Discussion Papers 26/1989, Bank of Finland.
    7. Dahalan, Jauhari & Sharma, Subhash C. & Sylwester, Kevin, 2005. "Divisia monetary aggregates and money demand for Malaysia," Journal of Asian Economics, Elsevier, vol. 15(6), pages 1137-1153, January.
    8. repec:zbw:bofrdp:1994_018 is not listed on IDEAS
    9. Douglas D. Evanoff & Larry D. Wall, 2000. "Subordinated debt and bank capital reform," FRB Atlanta Working Paper 2000-24, Federal Reserve Bank of Atlanta.
    10. Juan Coello, 1994. "¿Son las cajas y los bancos estratégicamente equivalentes?," Investigaciones Economicas, Fundación SEPI, vol. 18(2), pages 313-332, May.
    11. Georgopoulos, George J., 2006. "Estimating the demand for money in Canada: Does including an own rate of return matter?," The Quarterly Review of Economics and Finance, Elsevier, vol. 46(4), pages 513-529, September.
    12. William A. Barnett & Ryadh M. Alkhareif, 2015. "Modern and Traditional Methods for Measuring Money Supply: The Case of Saudi Arabia," IJFS, MDPI, vol. 3(1), pages 1-7, February.
    13. Jason Roderick Donaldson & Giorgia Piacentino & Anjan Thakor, 2021. "Intermediation Variety," Journal of Finance, American Finance Association, vol. 76(6), pages 3103-3152, December.
    14. Ronald Leaf, 1984. "Competitive Implicit Interest Payments in Commercial Banking," The American Economist, Sage Publications, vol. 28(1), pages 49-56, March.
    15. Serletis, Apostolos & Rangel-Ruiz, Ricardo, 2005. "Microeconometrics and measurement matters: Some results from monetary economics for Canada," Journal of Macroeconomics, Elsevier, vol. 27(2), pages 307-330, June.
    16. Walter A. Varvel & John R. Walter, 1982. "The competition for transaction accounts," Economic Review, Federal Reserve Bank of Richmond, vol. 68(Mar), pages 2-20.
    17. Tarkka, Juha, 1994. "Risk sharing in the pricing of payment services by banks," Research Discussion Papers 18/1994, Bank of Finland.
    18. Tarkka, Juha, 1994. "Risk sharing in the pricing of payment services by banks," Bank of Finland Research Discussion Papers 18/1994, Bank of Finland.
    19. Ngotran, Duong, 2020. "The e-monetary theory," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 14, pages 1-41.

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