Deregulation, Deposit Markets, and Banks' Costs of Funds |
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| Authors: | Thomas P. Bundt Robert Schweitzer |
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| Affiliation: | University of Notre Dame, Notre Dame, IN 46556.;University of Delaware, Newark, DE 19716. We gratefully acknowledge research support from the Center for Banking Research in the College of Business Administration at the University of Notre Dame. The authors wish to thank Harold Black, Myron Kwast, Thomas Loeffler, Robert Miller, Larry Davis, David Walker, and two anonymous reviewers for their helpful comments. |
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| Abstract: | Deposit interest rate deregulation and financial service innovation have led to dramatic changes in large banks' deposit composition. This paper presentes a statistical cost analysis of changes in unit costs faced by banks under comprehensive financial deregulation. The results of this paper show that the unit cost of retail deposits-demand and passbook savings deposits-has increased relative to wholesale deposits-federal funds, certificates of deposit, and money market time deposits. We show, contrary to conventional wisdom, that changes in unit costs have been caused by processing costs rather than by interest expenses. |
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