Doctor of Philosophy (PhD)


Department of Finance

Document Type



Deposits are the single largest source of funding for banks and are thus key to the stability of the banking system. Deposit flows and deposit rates are two mechanisms through which depositors discipline banks from excessive risk taking thus keeping the banking system stable.

In Chapter 1, I examine aggregate deposit inflows, outflows, and the reallocation of deposits in the banking system to further our understanding of banking stability. I find that on average deposit inflows are nearly three times larger and twice more volatile than outflows. Deposit flows vary with business cycles and market conditions, across deposit types, and cross-sectionally. Moreover, there is considerable heterogeneity in flows across deposit types. I also find that the largest banks attract and retain more deposits compared to smaller banks, and deposits are reallocated from small to largest banks. Deposits are also reallocated to banks which offer higher deposit rates, have lower insolvency risk assets, and low capital levels. My findings imply that deposit inflows and the heterogeneity in depositors are important in understanding banking stability. Moreover, at the aggregate level deposits are reallocated to banks that provide more utility to depositors, suggesting some evidence of market discipline.

In Chapter 2, I examine the role of bank accounting information in addressing information asymmetry problems between banks and depositors. I present evidence that rates on large, time deposits (CDs) increase with loan loss provisions (LLPs), especially non-discretionary provisions. These effects are pronounced from the financial crisis on-wards, where timelier provisioning reduces deposit rates. Furthermore, provisioning by banks that experience high loan growth and are profitable increases deposit rates, while banks that are conservative in accounting for their loan charge offs experience lower deposit rates. Additionally, in contrast to discretionary provisions, non-discretionary provisions that contribute to economic capital (in excess of Tier 2 regulatory capital) reduce deposit rates. These findings support the use of accounting information in providing market discipline, the third pillar in the regulatory framework proposed in the Basel III accord.



Committee Chair

Narayanan, Rajesh

Available for download on Friday, May 29, 2020