Dynamic Competition for Sleepy Deposits
We examine how “sleepy deposits” affect competition, bank value, and financial stability. Using novel data on account openings and closures at over 900 banks, we show that only 5–15% of depositors open new accounts per year. More closures are driven by moving or death than rate-shopping. We develop an empirical model in which banks face dynamic invest-versus-harvest incentives. We find that depositor sleepiness accounts for 57% of average deposit franchise value, softening competition particularly for banks in low-concentration markets and banks with low-quality services. Sleepiness also enhances financial stability and significantly reduced default probabilities during the 2023 banking turmoil.
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Copy CitationMark L. Egan, Ali Hortaçsu, Nathan A. Kaplan, Adi Sunderam, and Vincent Yao, "Dynamic Competition for Sleepy Deposits," NBER Working Paper 34267 (2025), https://doi.org/10.3386/w34267.Download Citation
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Non-Technical Summaries
- Banks compete to attract depositors, who care about the interest rates they earn on their deposits, the fees they are charged, and the...
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