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Dynamic Competition for Sleepy Deposits

Author

Listed:
  • Mark L. Egan
  • Ali Hortaçsu
  • Nathan A. Kaplan
  • Adi Sunderam
  • Vincent Yao

Abstract

We examine how “sleepy deposits” affect competition, bank value, and financial stability. Using novel data on account openings and closures at over 900 banks, we show that only 5–15% of depositors open new accounts per year. More closures are driven by moving or death than rate-shopping. We develop an empirical model in which banks face dynamic invest-versus-harvest incentives. We find that depositor sleepiness accounts for 57% of average deposit franchise value, softening competition particularly for banks in low-concentration markets and banks with low-quality services. Sleepiness also enhances financial stability and significantly reduced default probabilities during the 2023 banking turmoil.

Suggested Citation

  • Mark L. Egan & Ali Hortaçsu & Nathan A. Kaplan & Adi Sunderam & Vincent Yao, 2025. "Dynamic Competition for Sleepy Deposits," NBER Working Papers 34267, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:34267
    Note: AP CF IO
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    Cited by:

    1. Sergio Correia & Stephan Luck & Emil Verner, 2026. "Bank Runs With and Without Bank Failure," Papers 2601.20285, arXiv.org, revised Mar 2026.

    More about this item

    JEL classification:

    • G0 - Financial Economics - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L0 - Industrial Organization - - General

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