Dynamic Banking with Non-Maturing Deposits

Urban Jermann, Haotian Xiang

The majority of bank liabilities are deposits typically not withdrawn for extended periods. We propose a dynamic model of banks in which depositors forecast banks' leverage and default decisions, and withdraw optimally by trading off current against future liquidity needs. Endogenous deposit maturity creates a time-varying dilution problem that has major effects on bank dynamics. Interest rate cuts produce delayed increases in bank risk which are stronger in low rate regimes. Deposit insurance can exacerbate the deposit dilution and amplify the increase in bank risk

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Year of publication:	March 2023
Authors:	Jermann, Urban J. ; Xiang, Haotian
Institutions:	National Bureau of Economic Research (issuing body)
Publisher:	Cambridge, Mass : National Bureau of Economic Research
Subject:	Einlagengeschäft \| Deposit banking \| Einlagensicherung \| Deposit insurance \| Anlageverhalten \| Behavioural finance \| Fälligkeit \| Maturity \| Bankwirtschaft \| Economics of banking