Do Systematically Important Banks Pursue Low-Cost Deposits: Insights from a Difference-in-Differences Estimation ()
ABSTRACT
This study examines the impact of the classification of Domestic
Systematically Important banks (DSIBs) and their approach to deposits. The research was
conducted within the Indian context using a dataset of Indian banks from 2006
to 2022, with a pretreatment period of 2006-2015 and
a post-treatment period of 2020-2022. The main hypothesis centers on the
plausibility of DSIBs increasing their demand deposits to compensate for the
constraints induced by the additional capital requirements imposed on them. A
difference-in-differences (DID) estimation was performed to assess the impact
of the change in classification on the deposit structure. The Breusch-Pagan test was used to assess heteroskedasticity,
and a cluster-robust standard errors-based DID method was adopted to account
for heteroskedasticity in the data. DID assessment was performed after
controlling for total assets, which was used as a proxy for bank size. The
parallel trends assumption was tested using a parallel trend test, and
robustness was further checked using a Granger causality test. We find that the
volume of demand deposits increased after the classification of these banks as
being systematically important banks. We also find evidence that, on a
comparable scale, the change in interbank deposits for DSIBs is much greater
than the change in retail deposits from other sources.
Share and Cite:
Venugopal, S. (2023) Do Systematically Important Banks Pursue Low-Cost Deposits: Insights from a Difference-in-Differences Estimation.
Theoretical Economics Letters,
13, 1289-1306. doi:
10.4236/tel.2023.135072.
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