Transaction Deposits Research Articles

Central bank digital currency and bank intermediation: Medium of Exchange vs. Savings vehicle

This paper analyzes the effects of a retail central bank digital currency (CBDC) on bank intermediation within a general equilibrium model and provides a quantitative assessment. In the model, banks offer both transaction and savings deposits. This allows to study how a CBDC’s impact varies based on its usage as a medium of exchange or as a savings vehicle. When a CBDC is used as a savings vehicle that competes with savings deposits, the level of disintermediation almost doubles compared to a scenario where the CBDC is used solely for transactions and competes only with transaction deposits.

Optimizing the Role of Mobile Android in Improving Service Quality at BPRS Suriyah Cilacap

The development of increasingly sophisticsted technology makes it easier for finalcial institutions to utilize this technology in product to development and service quality at banks. BPRS Suriyah Cilacap has many services to support service operations at the bank, one of which is the android mobile service which is widely used by customers because it makes it easier for users to carry out transaction activities at the bank. The type of research used is field research conducted with informants. This study uses a qualitative method using a descriptive approach. The data sources of this study come from primary data and secondary data obtained through observation, interviews, documentation, websites, journal literature and bppks in order to obtain information and evidence in the research process. The results of this study regarding the process of optimizing the role of mobile android in improving the quality of services that have been completely optimal although there are still obstacles in their use. The android mobile service process by entering the service system and entering the customer’s name and data then input the nominal amount to be deposited by the customer and wait for the receipt or note to finish printing. In addition, the obstacles and solutions in using android mobile services at Suriyah BPRS are the service system that often has errors and disturbances when uploading transaction deposits made per day and the absence of mobile banking services in supporting the diverse needs of customers, the solution is to report to the office IT to be assisted if there are still problems and by trying to implement mobile banking services to support customer needs and many banks have used it.

The Demand for Money, Near-Money, and Treasury Bonds

AbstractBank-created money, shadow-bank money, and Treasury bonds all satisfy investors’ demand for liquidity. We measure the quantity of these forms of liquidity and their corresponding liquidity premium in a sample from 1934 to 2016, estimating the substitutability of these assets and the liquidity per unit delivered by each asset. Treasuries and bank transaction deposits are imperfect substitutes, in contrast to perfect substitutes found by Nagel (2016). Bank and nonbank non-transaction deposits are closer substitutes for Treasuries. Our empirical results inform theories of the monetary transmission mechanism running through shifts in asset supplies and models of the coexistence of the shadow banking and regulated banking system.Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Unexpected Effects of Bank Bailouts: Depositors Need Not Apply and Need Not Run

A key policy issue is whether bank bailouts weaken or strengthen market discipline. We address this by analyzing how bank bailouts influence deposit quantities and prices of recipients versus other banks. Using TARP bailouts, we find both deposit quantities and prices decline, consistent with substantially reduced demand for deposits by bailed-out banks that dominate market discipline supply effects. Main findings are robust to numerous checks and endogeneity tests. However, diving deeper into depositor heterogeneity suggests nuance. Increases in uninsured deposits, transactions deposits, and deposits in banks that repaid bailout funds early suggest some temporary limited support for weakened market discipline.

Community banks, money and labour productivity

AbstractDoes money affect productivity? We examine whether bank deposits, a measure of the money supply that excludes currency in circulation, influence labour productivity. Banks deposits are special in that they facilitate transactions and, in aggregate, add liquidity and credit availability to a region. By exploiting the distribution of community bank deposits across the states, we test the hypothesis that money is an input to the production function under a variety of panel data methods. We find evidence that bank transaction deposits and total deposits along with other production function inputs such as wages, labour and gross state product are cointegrated across the states; however, the economic contribution of money to labour productivity appears limited.

Derivatives usage for banking industry: evidence from the European markets

This study investigates the determinants and effects of the use of derivatives in the banking industry, which mainly uses derivatives for trading. Our empirical evidence suggests that banks that use derivatives are associated with higher levels of profitability, lower net interest margin, and more inflows into transaction deposits. We also find that banks’ profitability is significantly and positively related the use of foreign exchange and interest rate derivatives and that banks with high deposits and liquidity are more likely to use foreign exchange derivatives. Finally, we show that derivatives usage increases bank risk and bank value. Our results are robustness to the potential endogeneity issue.

Do Banks Have an Edge?

Overall, no! We show that the level and time series variation in cash flows for most bank activities are well matched by capital market portfolios with similar interest rate and credit risk to what banks report to hold. Ignoring operating expenses, bank loans earn high returns and transaction deposits pay low interest rates, consistent with these activities having a potential edge. The edge among these activities is insufficient to cover the large operating expenses of banks. A large portion of the aggregate US banking sector closely resembles a tax inefficient passive mutual fund. The residual risks of bank activities, presumably generated by the unique components of the bank business model, generate systematic risks that are uncompensated.

Deposit-lending synergies and bank profitability

Banks accept deposits and often lend via commitments. It has been shown that there are synergies between transaction deposits and loan commitments; and that the volatility of bank stock returns declines when these two liquidity risks are taken together. We examine whether such deposit-lending synergies reflect on U.S. commercial bank profitability levels, and whether the synergies impact bank profitability levels differently around financial crises. Our results from panel regressions show that the deposit-lending synergies translate to increased profitability only for small publicly traded banks. However, pre-crisis deposit-lending synergies do not appear to lead to higher profitability during or after the crises.

Liquidity shock management: Lessons from Australian banks

Prior to the 2007–2009 financial crisis, international banks had an average share of around 65% of the syndicated loan market in Australia. When the crisis hit, the resulting liquidity shock resulted in globally active international banks exiting the Australian market. With limited global operations, the major Australian banks were able to absorb and manage the liquidity shock. This resulted in domestic banks carrying a significantly greater proportion of revolving credit facilities in their syndicated loan portfolios after 2008. Domestic bank willingness and ability to deal with the market disruption and to hold a greater proportion of high liquidity risk revolvers are directly linked to the level of their transaction deposits. Their increased involvement in revolving facilities cannot be fully explained by the certification effect or flight-to-home effect. It is not demand driven and is robust to endogeneity tests.

Irreversible Deterioration of Cortical and Trabecular Microstructure Associated With Breastfeeding.

Estrogen deficiency associated with menopause is accompanied by an increase in the rate of bone remodeling and the appearance of a remodeling imbalance; each of the greater number of remodeling transactions deposits less bone than was resorbed, resulting in microstructural deterioration. The newly deposited bone is also less completely mineralized than the older bone resorbed. We examined whether breastfeeding, an estrogen-deficient state, compromises bone microstructure and matrix mineral density. Distal tibial and distal radial microarchitecture were quantified using high-resolution peripheral quantitative computed tomography in 58 women before, during, and after breastfeeding and in 48 controls during follow-up of 1 to 5 years. Five months of exclusive breastfeeding increased cortical porosity by 0.6% (95% confidence interval [CI] 0.3-0.9), reduced matrix mineralization density by 0.26% (95% CI 0.12-0.41) (both p < 0.01), reduced trabecular number by 0.22 per mm (95% CI 0.15-0.28), and increased trabecular separation by 0.07 mm (95% CI 0.05-0.08) (all p < 0.001). Relative to prebreastfeeding, at a median of 2.6 years (range 1 to 4.8) after cessation of breastfeeding, cortical porosity remained 0.58 SD (95% CI 0.48-0.68) higher, matrix mineralization density remained 1.28 SD (95% CI 1.07-1.49) lower, and trabeculae were 1.33 SD (95% CI 1.15-1.50) fewer and 1.06 SD (95% CI 0.91-1.22) more greatly separated (all p < 0.001). All deficits were greater than in controls. The results were similar at distal radius. Bone microstructure may be irreversibly deteriorated after cessation of breastfeeding at appendicular sites. Studies are needed to establish whether this deterioration compromises bone strength and increases fracture risk later in life. © 2016 American Society for Bone and Mineral Research.

A Review of Bank Funding Cost Differentials

The debate over the existence and extent of funding cost differentials between large and small banks is central to regulatory reforms related to perceptions of “too big to fail” government support. After providing a simple taxonomy of five basic approaches into which the wide-ranging empirical literature on this topic can be categorized, I analyze key challenges that all of the approaches face, namely, the interpretation of funding costs differences between large and small banks, the choice of the relevant time period, the choice of the sample, and the significant differences in the funding structures of large and small banks. After analyzing further more specific challenges for three of the approaches, I describe the most promising methods for measuring funding cost differentials and present a “natural experiment” concerning the elimination of complete FDIC coverage of transactions deposits at the end of 2012, which suggests that depositors did not perceived a significant difference in risk between large and small banks during this period.

Minimizing bank liquidity risk: evidence from the Lehman crisis

We propose a new framework for Asset-Liability Management of bank liquidity risk. We consider liquidity-risk diversification across asset and liability classes of US commercial banks and provide evidence of banks’ heterogeneous response to the Lehman crisis. Empirical results indicate that since the onset of the global financial crisis, small banks relied extensively on securities holdings to meet their liquidity needs and undo the ensuing tightening in funding conditions. During the deleveraging process that followed, large banks appeared relatively unconstrained by loan illiquidity and were able to scale down loan exposures more aggressively than smaller banks. Non- transaction deposits played a key role in boosting funding liquidity of larger banks during the Lehman crisis. In contrast, transaction deposits supported the funding position of small banks only after the crisis.

Bank Market Power and Liquidity: Evidence from 113 Developed and Developing Countries

This paper investigates the association between market power and bank liquidity across 113 developed and developing countries. Using bank-level measures of market power (both a conventional and a funding-adjusted Lerner index) and Generalised Methods of Moments estimators, we find an inverse U-shaped relation between bank market power and liquidity. It shows that with initial increases in market power, banks hold more liquid assets, attract more non-transaction deposits and are net lenders in the interbank market. When market power exceeds a certain threshold, however, banks invest less in liquid assets, attract more transaction deposits and become net borrowers in the interbank market. We also find that for a given level of market power, ceteris paribus, banks in developed nations have lower investment in asset liquidity, attract more transaction deposits and obtain more funding through the interbank market than their developing country counterparts. These results are consistent across all models.

Interest on bank reserves and optimal sweeping

A key rationale offered by the Federal Reserve for the payment of interest on reserves was to remove the incentive for banks to operate sweep accounts. Sweeping shifts funds from transactions deposits subject to reserve requirements to non-reservable deposits. This paper extends a conventional banking model to analyze sweeping behavior. Sweeping responds positively to increases in bank loan rates and reserve ratios and negatively to increases in the interest rate on reserves or exogenous increases in bank equity. Sweeping generates greater responsiveness in lending to changes in loan rates or the interest rate on reserves and lower responsiveness to changes in reserve ratios or equity than in its absence. Empirical analysis of an explicit condition that we derive suggests that, with an unchanged reserve requirement, the Fed could eliminate sweeping by setting the interest rate on reserves to no less than approximately 4% points below the market loan rate.

The term structure of CD rates and monetary policy transmission

The paper investigates the term structure of CD rates and its relationship with the federal funds rate or monetary policy. The term structure derived in this paper is governed primarily by the federal funds rate and secondarily by banks’ income smoothing behavior. It is consistent with the estimation results and differs significantly from the standard term structure of interest rates. The downturn phase of business cycles appears to be accompanied by more aggressive income smoothing by banks (compared with the upturn phase) due to their pessimistic expectations of future profits. The compositional shift in banks’ liabilities during the downturn phase away from CDs toward transaction deposits may pose a greater withdrawal risk for banks.

Liquidity risk and syndicate structure

We decompose syndicated loan risk into credit, market, and liquidity risk and test how these shape syndicate structure. Commercial banks dominate relative to non-banks in loan syndicates that expose lenders to liquidity risk. This dominance is most pronounced when borrowers have high levels of credit or market risk. We then tie commercial banks’ advantage in liquidity risk to access to transactions deposits by comparing investments across banks. The results suggest that risk-management considerations matter most for participants relative to lead arrangers. Links from transactions deposits to liquidity exposure, for instance, are more than 50% larger at participants than at lead arrangers.

Mainsource Financial Group Inc

AbstractCommercial Banking (MIC: SIC: 6022 NAIC: 522110)MainSource Financial Group is a financial holding company. Through its banking subsidiaries, Co. provides a range of financial services, including: accepting time and transaction deposits; making consumer, commercial, agribusiness and real estate mortgage loans; renting safe deposit facilities; providing general agency personal and business insurance services; and providing personal and corporate trust services. Co. also provides services incidental to the business of banking through its non‐bank affiliates. As of Dec 31 2007, Co. had total assets of about $2.54 billion, and operated 79 branch banking offices in Indiana, Illinois, and Ohio as well as eight insurance offices in Indiana.

Mainsource Financial Group Inc

AbstractCommercial Banking (MIC: SIC: 6022 NAIC: 522110)MainSource Financial Group is a financial holding company. Through its banking subsidiaries, Co. provides a range of financial services, including: accepting time and transaction deposits; making consumer, commercial, agribusiness and real estate mortgage loans; renting safe deposit facilities; providing general agency personal and business insurance services; and providing personal and corporate trust services. Co. also provides services incidental to the business of banking through its non‐bank affiliates. As of Dec 31 2007, Co. had total assets of about $2.54 billion, and operated 79 branch banking offices in Indiana, Illinois, and Ohio as well as eight insurance offices in Indiana.

A Specialized Inventory Problem in Banks: Optimizing Retail Sweeps

Deposits held at Federal Reserve Banks are an essential input to the business activity of most depository institutions in the United States. Managing these deposits is an important and complex inventory problem for two reasons. First, Federal Reserve regulations require that depository institutions hold certain amounts of such deposits at the Federal Reserve Banks to satisfy statutory reserve requirements against customers' transaction accounts (demand deposits and other checkable deposits). Second, some inventory of such deposits is essential for banks to operate one of their core lines of business: furnishing payment services to households and firms. Because the Federal Reserve does not pay interest on such deposits used to satisfy statutory reserve requirements, banks seek to minimize their inventory of such deposits. In 1994, the banking industry introduced a new inventory management tool for such deposits, the retail deposit sweep program, which avoids the statutory requirement by reclassifying transaction deposits as savings deposits. This is an interesting inventory problem for fungible items, where the conversion process is reversible. We examine two methods for operating such sweeps programs within the limits of Federal Reserve regulations, and we develop a stochastic dynamic programming model to implement one such method, the threshold method.

MainSource Financial Group Inc

AbstractCommercial Banking (MIC: 8.1 SIC: 6022 NAIC: 522110)MainSource Financial Group is a financial holding company. Through its banking subsidiaries, Co. provides a range of financial services, including: accepting time and transaction deposits; making consumer, commercial, agribusiness and real estate mortgage loans; renting safe deposit facilities; providing general agency personal and business insurance services; and providing personal and corporate trust services. Co. also provides services incidental to the business of banking through its non‐bank affiliates. As of Dec 31 2007, Co. had total assets of about $2.54 billion, and operated 79 branch banking offices in Indiana, Illinois, and Ohio as well as eight insurance offices in Indiana.