Deposit rate advantages at the largest banks

We estimate differences in funding costs between the largest banks and the rest of the industry. Using a novel dataset on deposit rates offered at the branch level, we document significant pricing advantages at the largest banks on comparable deposit products and deposit risk premiums. Between 2007 and 2008, the risk premium paid by the largest banks was 39 bps lower than the risk premium at other banks. This difference vanishes following a regulatory change in the deposit limit. These findings are consistent with a significant too-big-to-fail subsidy paid to the largest banks through lower risk premiums on uninsured deposits.

“This paper is part of the mini conference on "The Future of Large Financial Institutions" at the 2014 fall meetings of the International Atlantic Economic Society.  Sessions on this and related themes are expected to be continued at the spring 2015 meetings in Milan and the fall 2015 meetings in Boston.”