Working Paper Series
Deposit Rate Advantages at the
Largest Banks
Stefan Jacewitz
Federal Deposit Insurance Corporation
Jonathan Pogach
Federal Deposit Insurance Corporation
First Version: November 2011
Current Version: February 2014
FDIC CFR WP 2014-02
fdic.gov/cfr
NOTE: Staff working papers are preliminary materials circulated to stimulate discussion and critical
comment. The analysis, conclusions, and opinions set forth here are those of the author(s) alone and do
not necessarily reflect the views of the Federal Deposit Insurance Corporation. References in publications
to this paper (other than acknowledgment) should be cleared with the author(s) to protect the tentative
character of these papers.
Deposit Rate Advantages at the
Largest Banks
Stefan Jacewitz
Federal Deposit Insurance Corporation
Jonathan Pogach
Federal Deposit Insurance Corporation
First Version: November 2011
Current Version: February 2014
FDIC CFR WP 2014-02
fdic.gov/cfr
NOTE: Staff working papers are preliminary materials circulated to stimulate discussion and critical
comment. The analysis, conclusions, and opinions set forth here are those of the author(s) alone and do
not necessarily reflect the views of the Federal Deposit Insurance Corporation. References in publications
to this paper (other than acknowledgment) should be cleared with the author(s) to protect the tentative
character of these papers.
Deposit Rate Advantages at the Largest Banks∗
Stefan Jacewitz† Jonathan Pogach†
This Version: 21 February 2014
First Version: 16 November 2011
Abstract
We estimate differences in funding costs between the largest banks and the rest of
the industry. Using deposit rates offered at the branch level, we eliminate many
non-risk-related differences between banks. We document significant and persistent
pricing advantages at the largest banks for 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 under the baseline estimate
after controlling for common risk variables. These findings are consistent with an
economically significant too-big-to-fail subsidy paid to the largest banks through lower
risk premiums on uninsured deposits.
Keywords: Too big to fail; Risk premium; Deposits; Interest rates
JEL Codes: G21, G28, H81
Opinions expressed in this paper are those of the authors and not necessarily
those of the FDIC
∗The authors thank Carlos Arteta, William F. Bassett, Steve Burton, V. V. Chari, Bob DeYoung, Alireza
Ebrahim, Ron Feldman, Levent G ̈untay, Robert Hauswald, Paul Kupiec, Myron Kwast, Oscar Mitnik, Don
Morgan, George Pennacchi, Carlos Ram ́ırez, Silvia Ram ́ırez, Haluk ̈Unal, Skander Van den Heuvel, and Smith
Williams, as well as participants in seminars at the Federal Reserve Board, the Federal Reserve Bank of
Minneapolis, the University of Maryland, the Financial Management Association’s 2012 annual meeting, the
2013 Banking Research Conference, the Research Task Force of the Basel Committee on Banking Supervision
and China Banking Regulatory Commission, and the Center for Financial Research at the FDIC for their
valuable comments and suggestions. Any remaining errors are the sole responsibility of the authors.
†Federal Deposit Insurance Corporation. Authors can be reached at sjacewitz@fdic.gov and
jpogach@fdic.gov.
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Stefan Jacewitz† Jonathan Pogach†
This Version: 21 February 2014
First Version: 16 November 2011
Abstract
We estimate differences in funding costs between the largest banks and the rest of
the industry. Using deposit rates offered at the branch level, we eliminate many
non-risk-related differences between banks. We document significant and persistent
pricing advantages at the largest banks for 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 under the baseline estimate
after controlling for common risk variables. These findings are consistent with an
economically significant too-big-to-fail subsidy paid to the largest banks through lower
risk premiums on uninsured deposits.
Keywords: Too big to fail; Risk premium; Deposits; Interest rates
JEL Codes: G21, G28, H81
Opinions expressed in this paper are those of the authors and not necessarily
those of the FDIC
∗The authors thank Carlos Arteta, William F. Bassett, Steve Burton, V. V. Chari, Bob DeYoung, Alireza
Ebrahim, Ron Feldman, Levent G ̈untay, Robert Hauswald, Paul Kupiec, Myron Kwast, Oscar Mitnik, Don
Morgan, George Pennacchi, Carlos Ram ́ırez, Silvia Ram ́ırez, Haluk ̈Unal, Skander Van den Heuvel, and Smith
Williams, as well as participants in seminars at the Federal Reserve Board, the Federal Reserve Bank of
Minneapolis, the University of Maryland, the Financial Management Association’s 2012 annual meeting, the
2013 Banking Research Conference, the Research Task Force of the Basel Committee on Banking Supervision
and China Banking Regulatory Commission, and the Center for Financial Research at the FDIC for their
valuable comments and suggestions. Any remaining errors are the sole responsibility of the authors.
†Federal Deposit Insurance Corporation. Authors can be reached at sjacewitz@fdic.gov and
jpogach@fdic.gov.
1