Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Faculty & Research
  • Faculty
  • Research
  • Featured Topics
  • Academic Units
  • …→
  • Harvard Business School→
  • Faculty & Research→
Publications
Publications
  • Article
  • American Economic Review

Deposit Competition and Financial Fragility: Evidence from the U.S. Banking Sector

By: Mark Egan, Ali Hortaçsu and Gregor Matvos
  • Format:Print
ShareBar

Abstract

We develop a structural empirical model of the US banking sector. Insured depositors and run-prone uninsured depositors choose between differentiated banks. Banks compete for deposits and endogenously default. The estimated demand for uninsured deposits declines with banks' financial distress, which is not the case for insured deposits. We calibrate the supply side of the model. The calibrated model possesses multiple equilibria with bank-run features, suggesting that banks can be very fragile. We use our model to analyze proposed bank regulations. For example, our results suggest that a capital requirement below 18 percent can lead to significant instability in the banking system.

Keywords

Banks and Banking; Financial Condition; United States

Citation

Egan, Mark, Ali Hortaçsu, and Gregor Matvos. "Deposit Competition and Financial Fragility: Evidence from the U.S. Banking Sector." American Economic Review 107, no. 1 (January 2017): 169–216.
  • Find it at Harvard
  • Purchase

About The Author

Mark L. Egan

Finance
→More Publications

More from the Authors

    • Review of Financial Studies

    The Cross Section of Bank Value

    By: Mark Egan, Stefan Lewellen and Adi Sunderam
    • May 2022
    • Journal of Political Economy

    When Harry Fired Sally: The Double Standard in Punishing Misconduct

    By: Mark Egan, Gregor Matvos and Amit Seru
    • Harvard Business Review

    A Better Way to Assess Managerial Performance

    By: Mihir Desai, Mark Egan and Scott Mayfield
More from the Authors
  • The Cross Section of Bank Value By: Mark Egan, Stefan Lewellen and Adi Sunderam
  • When Harry Fired Sally: The Double Standard in Punishing Misconduct By: Mark Egan, Gregor Matvos and Amit Seru
  • A Better Way to Assess Managerial Performance By: Mihir Desai, Mark Egan and Scott Mayfield
ǁ
Campus Map
Harvard Business School
Soldiers Field
Boston, MA 02163
→Map & Directions
→More Contact Information
  • Make a Gift
  • Site Map
  • Jobs
  • Harvard University
  • Trademarks
  • Policies
  • Accessibility
  • Digital Accessibility
Copyright © President & Fellows of Harvard College