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Deposit Market Competition, Wholesale Funding, and Bank Risk

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  • Craig, B.R.
  • Dinger, V.

Abstract

In this paper we revisit the long debate on the risk effects of bank competition and propose a new approach to the empirical estimation of the relation between deposit market competition and bank risk. Our approach accounts for the opportunity of banks to shift to wholesale funding when deposit market competition is intense. The analysis is based on a unique comprehensive dataset which combines retail deposit rates data with data on bank characteristics and with data on local deposit market features for a sample of 589 U.S. banks. Our results support the notion of a risk-enhancing effect of deposit market competition.

Suggested Citation

  • Craig, B.R. & Dinger, V., 2010. "Deposit Market Competition, Wholesale Funding, and Bank Risk," Discussion Paper 2010-65S, Tilburg University, Center for Economic Research.
  • Handle: RePEc:tiu:tiucen:a9e231cc-ad0f-4c0e-a89a-9aa37ae45860
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Valeriya Dinger, 2015. "Bank Mergers and Deposit Rate Rigidity," Journal of Financial Services Research, Springer;Western Finance Association, vol. 47(1), pages 27-56, February.
    2. Tomas Klinger & Petr Teply, 2016. "The Nexus Between Systemic Risk and Sovereign Crises," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 66(1), pages 50-69, February.
    3. Sääskilahti, Jaakko, 2016. "Local bank competition and small business lending after the onset of the financial crisis," Journal of Banking & Finance, Elsevier, vol. 69(C), pages 37-51.
    4. repec:eee:ememar:v:32:y:2017:i:c:p:168-189 is not listed on IDEAS
    5. Kok, Christoffer & Gross, Marco & Żochowski, Dawid, 2016. "The impact of bank capital on economic activity - evidence from a mixed-cross-section GVAR model," Working Paper Series 1888, European Central Bank.
    6. M. Brei & L. Jacolin & A. Noah, 2018. "Credit risk and bank competition in Sub-Saharan Africa," Working papers 664, Banque de France.
    7. Alexander Guarín-López & Ignacio Lozano-Espitia, 2016. "Credit Funding and Banking Fragility: An Empirical Analysis for Emerging Economies," BORRADORES DE ECONOMIA 014306, BANCO DE LA REPÚBLICA.
    8. Jarko Fidrmuc & Philipp Schreiber & Martin Siddiqui, 2015. "The Transmission of Bank Funding to Corporate Loans: Deleveraging in Germany," Open Economies Review, Springer, vol. 26(3), pages 581-597, July.
    9. Olszak, Małgorzata & Pipień, Mateusz & Kowalska, Iwona & Roszkowska, Sylwia, 2014. "What drives heterogeneity of loan loss provisions’ procyclicality in the EU?," MPRA Paper 56834, University Library of Munich, Germany.
    10. Ching-Wai (Jeremy) Chiu & John Hill, 2018. "The Rate Elasticity of Retail Deposits in the United Kingdom: A Macroeconomic Investigation," International Journal of Central Banking, International Journal of Central Banking, vol. 14(2), pages 113-158, March.
    11. repec:eee:riibaf:v:41:y:2017:i:c:p:90-104 is not listed on IDEAS
    12. Robin Dottling, 2018. "Bank Capital Regulation in a Zero Interest Environment," Tinbergen Institute Discussion Papers 18-016/IV, Tinbergen Institute, revised 01 May 2018.
    13. Chen, Minghua & Jeon, Bang Nam & Wang, Rui & Wu, Ji, 2015. "Corruption and bank risk-taking: Evidence from emerging economies," Emerging Markets Review, Elsevier, vol. 24(C), pages 122-148.
    14. Fabiana Gomez & Jorge Ponce, 2014. "Bank Competition and Loan Quality," Journal of Financial Services Research, Springer;Western Finance Association, vol. 46(3), pages 215-233, December.
    15. repec:eee:ecofin:v:42:y:2017:i:c:p:668-681 is not listed on IDEAS
    16. Fabiana Gómez & Jorge Ponce, 2010. "Loan market competition screening and bank stability," Documentos de trabajo 2010005, Banco Central del Uruguay.

    More about this item

    Keywords

    bank competition; wholesale funding; bank risk; deposit rates;

    JEL classification:

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

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