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Destabilizing Digital "Bank Walks"

Author

Listed:
  • Naz Koont
  • Tano Santos
  • Luigi Zingales

Abstract

We develop a model of “stickiness” of bank deposits to study the effect of digitalization on the size and duration of the value of the deposit franchise and, ultimately, on banks’ stability. The model predicts that digitalization increases the sensitivity of deposit levels and rates to changes in the Fed funds rate. We test these predictions using data on the U.S. banking sector, and find that, when interest rates rise, deposit outflows, or “walks”, and deposit rate pass-through are significantly larger at banks with mobile apps and brokerage services. We use these estimates to predict the effects of digitalization on bank stability. Digitalization has ambiguous effects on the value of the deposit franchise, depending on the magnitude of the reduction in the marginal cost of servicing deposits. Still, it unambiguously increases the deposit franchise duration, undermining bank stability.

Suggested Citation

  • Naz Koont & Tano Santos & Luigi Zingales, 2024. "Destabilizing Digital "Bank Walks"," NBER Working Papers 32601, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:32601
    Note: CF
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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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