U.S. Savings Banks' Demutualization and Depositor Welfare

Historically, U.S. savings banks were owned by their customers, in particular by their depositors. In recent decades, however, many savings banks have demutualized, by converting from customer ownership to investor ownership. This paper provides an assessment of the effect on depositor welfare of such events. We first estimate a random coeffcients logit model of bank deposit account choice, using data on commercial and savings banks from 1994 to 2005. Having recovered depositorsu0027 preferences for bank attributes, we then measure the effect on depositor welfare of a simulated demutualization of all customer-owned savings banks. We find that, on average, depositorsu0027 welfare would increase. In particular, if demutualized savings banks offered a deposit rate in line with other investor-owned savings banks, each depositor would gain $1.14 annually, for a total of $22 million for each state and year. Our findings cast doubt on whether U.S. customer-owned savings banks are well serving their customersu0027 interests, and offers a new explanation for observed U.S. savings bank demutualizations.u0000