The deposit base – multibanking and bank stability

Hendrik Hakenes, Eva Schliephake

Research output: Working paperPreprint

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Abstract

To provide maturity transformation, banks need a deposit base – deposits that could be, but are not, withdrawn most of the time and are, thus, used for long-termlending. In a global-games environment, we show that a higher deposit base protects banks against panic runs. As depositors become more flexible in their bank relations, keeping multiple accounts at different institutions, the deposit base of banks changes. We analyze the impact of multi-banking on bank stability and show that in an economy with specialized institutions, households allocate too few funds to maturity-transforming institutions (banks). A policy-maker should support the banks, even though they are more fragile. If only some institutions are protected by deposit insurance, the deposit base moves away from the unprotected institutions, leaving them more prone to runs.
Original languageEnglish
Pages1-36
Number of pages36
DOIs
Publication statusPublished - Jul 2019
Externally publishedYes

Publication series

NameCRC TR 224 Discussion Paper Series, 2019

Keywords

  • Bank runs
  • Deposit base
  • Global games
  • Financial stability

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