The relative influence of price and choice factors on retail deposit quantities

This study explores how price and non-price factors influence the quantity of retail deposits held by depository institutions. Price factors examined include the policy or base rate and retail deposit interest rates set by individual banks, and non-price factors include the branch network and the number of deposit accounts offered by individual banks. The analysis is undertaken for a sample of UK building societies over twenty three years using a disaggregated data set of instant access retail deposit accounts. The methodology uses a two stage econometric procedure involving system estimators in a panel framework using SUR and GMM to control for contemporaneous correlation and endogeneity concerns. Both price and non-price factors are significant influences of retail deposit quantities. We conclude risk assessment of retail deposit quantity and monetary policy transmission would benefit from considering price and non-price factors, rather than only price factors.