The Distortive Effects of Too Big To Fail: Evidence from the Danish Market for Retail Deposits
52 Pages Posted: 22 May 2016 Last revised: 10 Apr 2019
Date Written: November 1, 2018
We study the impact of too big to fail (TBTF) guarantees on bank competition for retail deposits. Exploiting information about all personal deposit accounts in Denmark and salient changes to the deposit insurance limit, we provide evidence that systemically important banks successfully retain and attract uninsured deposits in a crisis at the expense of other banks even as they differentially lower their interest rates. The funding shock suffered by non-systemic banks causes a decrease in their lending. The results point to distortive effects of TBTF guarantees in the market for retail deposits.
Keywords: Too Big To Fail, Deposit insurance, Implicit guarantees, Banks
JEL Classification: D12, G21, G28, O16
Suggested Citation: Suggested Citation