TITLE:
Do Systematically Important Banks Pursue Low-Cost Deposits: Insights from a Difference-in-Differences Estimation
AUTHORS:
Santhosh Kumar Venugopal
KEYWORDS:
DSIB, Difference-in-Differences, Systematically Important, Bank, Deposit
JOURNAL NAME:
Theoretical Economics Letters,
Vol.13 No.5,
October
25,
2023
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.