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Deposits Market Exclusion and the Emergence of Premium Banks

Author

Listed:
  • Hayk Sargsyan

    (Universitat Pompeu Fabra)

  • Aleksandr Grigoryan

    (SKEMA Business School, Université Côte d'Azur, France.)

  • Olivier Bruno

    (Université Côte d'Azur, CNRS, GREDEG, SKEMA Business School, France)

Abstract

In this paper we develop a model which explains exclusion from deposits market and the emergence of premium banks. Households' demand for deposits is modelled accounting for diversification motive and love for services. Market exclusion and the emergence of premium banks occur, if the diversification motive dominates. Too unequal distribution of income directed to deposits leads to the exclusion of poor from rich-serving banks' deposit product markets, resulting in higher markups and a lower level of total deposits. In the empirical part, we use a bank-branch level data and county level income inequality as a proxy for deposits inequality for the U.S. economy. We find supporting evidence for the main assumptions of the theoretical model, which are (i) price elasticities di er for rich and poor, (ii) premium banks set higher deposit prices, (iii) the likelihood of the emergence of premium banks increases in income inequality, and (iv) the total volume of deposits decreases in income inequality.

Suggested Citation

  • Hayk Sargsyan & Aleksandr Grigoryan & Olivier Bruno, 2025. "Deposits Market Exclusion and the Emergence of Premium Banks," GREDEG Working Papers 2025-10, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.
    • Handle: RePEc:gre:wpaper:2025-10
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    More about this item

    Keywords

    Market exclusion; premium banks; deposit price; deposit-holdings inequality; non-homothetic preferences;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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