قیمت گذاری ریسک های عمده فروشی و رفتار نرخ سپرده خرده فروشی Risk pricing of wholesale funds and the behavior of retail deposit rates

1. Introduction Understanding how bank-specific risk affects bank liability management has implications for antitrust policy, monetary transmission, and regulations focused on financial stability. This paper explores risk-induced substitution between wholesale and retail deposits and the implications it has for retail rate behavior. We argue that the bank’s own risk and the risk of its rivals in a local market affect the pricing of the bank’s retail deposit and determine the ability of the bank to use retail deposits as a marginal source of funds. We show that an increase in the bank’s forecasted own-risk premium encourages substitution into interest-sensitive retail certificates of deposits (CDs) through raising retail CD rates, while an increase in local-market rival-risk premium inhibits substitution. We first assume a bank’s predicted risk-priced premium on wholesale funds incentivizes it to substitute between wholesale and retail deposits by altering retail rates. We argue that this risk-induced substitution creates two channels – own-bank and rival-bank effects. Through the first channel, an increase in the bank’s predicted risk-priced premium induces the bank to substitute away from more expensive uninsured wholesale funds towards cheaper insured retail deposits, by raising retail rates. The larger this predicted risk premium the greater is the pressure for the bank to increase retail rates, all else equal. This pricing pressure is bank specific and is independent of the market in which the bank operates. Through the second channel, increased risk of the bank’s local market rivals incentivizes those rivals to raise their retail rates. Consequently, the bank faces greater deposit rate pressure in a local market where its predicted rival-risk premiums are high. This rival-risk pricing pressure is bank-market specific.