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Deregulation, Deposit Markets, and Banks' Costs of Funds
Author(s) -
Bundt Thomas P.,
Schweitzer Robert
Publication year - 1989
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/j.1540-6288.1989.tb00350.x
Subject(s) - deregulation , unit (ring theory) , business , cost of funds index , interest rate , demand deposit , finance , service (business) , certificate of deposit , financial system , monetary economics , economics , commerce , monetary policy , market economy , mathematics education , mathematics , marketing
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.