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Evidence of Early Withdrawal in Time Deposit Portfolios (1999)
| Venue: | Journal of Financial Services Research |
| Citations: | 4 - 0 self |
BibTeX
@ARTICLE{Gilkeson99evidenceof,
author = {James H. Gilkeson and John A. List and Craig K. Ruff},
title = {Evidence of Early Withdrawal in Time Deposit Portfolios},
journal = {Journal of Financial Services Research},
year = {1999},
pages = {103--122}
}
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Abstract
The embedded options found in some securities are known to have significant impact on product pricing, secondary market valuation, and risk measurement and management. The option to withdraw commonly found in bank deposits is one of the least studied of these. We help to fill this gap by examining the level and interest rate sensitivity of early withdrawals of retail time deposits using panel data from the Thrift Financial Report. We find that longer-maturity time deposit portfolios commonly experience early withdrawals at economically significant levels. Further, we find that depositors respond positively, with increased levels of early withdrawal, to the reinvestment incentive they face when new deposit rates rise. These findings increase our understanding of consumer behavior with regard to financial products and have significant implications for the competitive pricing of deposit products and the management of bank interest rate risk. Banking changed significantly during the 1980s and 1990s, as financial markets became increasingly volatile and competition—both interbank and between commercial banks, investment banks, insurance companies, mutual funds, and other financial service providers—grew.1 After years of losing depositors to mutual funds and other investment vehicles and losing borrowers to the increasingly accessible commercial paper and
Keyphrases
early withdrawal time deposit portfolio mutual fund consumer behavior competitive pricing secondary market valuation investment vehicle thrift financial report new deposit rate reinvestment incentive significant level accessible commercial paper longer-maturity time deposit portfolio embedded option deposit product risk measurement product pricing financial product significant implication significant impact retail time deposit financial market interest rate sensitivity commercial bank bank deposit insurance company panel data bank interest rate risk financial service provider increased level investment bank
