Conference Agenda

Please note that all times are shown in the time zone of the conference. The current conference time is: 1st Nov 2024, 12:25:07am CET

 
 
Session Overview
Session
FI 13: Deposits and Lending
Time:
Saturday, 19/Aug/2023:
9:30am - 11:00am

Session Chair: Larissa Schaefer, Frankfurt School of Finance and Management
Location: 2A-33 (floor 2)


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Presentations
ID: 2118

Payment Risk and Bank Lending: The Tension between the Monetary and Financing Roles of Deposits

Ye Li1, Yi Li2

1University of Washington, United States of America; 2Federal Reserve Board

Discussant: Filippo De Marco (Bocconi University)

Banks finance lending with deposits and support the operation of payment system by allowing depositors to freely transfer funds in and out of their deposit accounts. This bundling of financial services creates a liquidity mismatch. Using granular payment data, we characterize a sizeable liquidity risk exposure that banks face due to highly volatile payment flows. Payment risk is a form of funding stability risk that is unique to banks. Our analysis demonstrates the tension between the monetary role and financing role of deposits. We find that payment risk dampens bank lending: An interquartile increase in payment risk is associated with a decline in loan growth that is 10%-20% of its standard deviation. This detrimental effect is amplified by funding stress in broader financial markets and is stronger for undercapitalized banks. Furthermore, payment risk impedes the bank lending channel of monetary policy transmission. Finally, we characterize how banks mitigate payment risk by adjusting deposit rates.

EFA2023_2118_FI 13_1_Payment Risk and Bank Lending.pdf


ID: 955

Running Out of Time (Deposits): Falling Interest Rates and the Decline of Business Lending, Investment and Firm Creation

Dominik Supera

Columbia Business School, Columbia University

Discussant: Yannick Timmer (IMF)

I show that the long-term decrease in the nominal short rate since the 1980s contributed to a decline in banks' supply of business loans, firm investment and new firm creation, and an increase in banks' real estate lending. The driving force behind these relationships was the shift in banks’ funding mix from time deposits (CDs) to savings deposits, which was caused by the decrease in the nominal rate. I show that banks finance business lending with time deposits because of their matching interest-rate sensitivity and liquidity. A lower nominal rate reduces the spread on liquid deposits (e.g., savings deposits), leading households to substitute towards them and away from illiquid time deposits. In response to an outflow of time deposits, banks cut the supply of business loans and increase their price. The decrease in business lending leads to reduced investment at bank-dependent firms and a lower entry rate of firms in industries that are highly reliant on external funding. I document these relationships both in the aggregate, and in the cross-section of banks, firms and geographic areas. For identification, I exploit cross-sectional variation in banks' market power and business credit data. I develop a general equilibrium model which captures these relationships and shows that the transmission mechanism I document is quantitatively important.

EFA2023_955_FI 13_2_Running Out of Time (Deposits).pdf


ID: 757

The Impact of Fintech on Banking: Evidence from Banks' Partnering with Zelle

Sheng Huang1, Bo Jiang2, Yajun Xiao3

1China Europe International Business School, China, People's Republic of; 2Xi'an Jiaotong-Liverpool University, China, People's Republic of; 3Xi'an Jiaotong-Liverpool University, China, People's Republic of

Discussant: Jan Keil (Humboldt University at Berlin)

Despite a burgeoning literature on Fintech lending that has been occurring from outside the financial industry, less is known about the adoption of Fintech by banks and its implications. We fill this gap by investigating banks’ partnering with Zelle. We document a network effect in banks’ decisions to partner with Zelle as they are positively affected by Zelle penetration in the market that the banks operate. Zelle partnering is followed by higher growth in partnering banks’ deposits and, consequently, small business lending, in the market with greater Zelle penetration. For identification, we rely on (1) estimations of cross-branch variations within a bank to account for bank-level lending opportunities and (2) an exogenous shock to a bank’s Zelle-partnering status due to bank mergers. Overall, our findings are consistent with the interactive nature of banks’ technology adoption and the positive impact of Fintech on banks’ deposit taking and small business lending.

EFA2023_757_FI 13_3_The Impact of Fintech on Banking.pdf


 
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