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Valuing Core Deposits

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  • Richard Sheehan

Abstract

While the financial crisis has brought to the fore valuation of bank assets, equally important to a bank’s long-term health is the quality of its deposits. This paper employs bank-specific data on total and retained balances to value so-called core deposits: checking and savings and money market accounts. The empirical results indicate that core deposits have considerable value to financial institutions, often dramatically more than regulators have allowed. The empirical results also indicate that the value of core deposits varies substantially by institution. For some institutions the value of core deposits approaches the total value of the institution. I am grateful to Rob Battalio, Tom Cosimano, Dave Hutchison, Bill McGuire and seminar participants at the University of Notre Dame for their comments on earlier drafts. I am particularly grateful to an anonymous referee whose suggestions substantially improved the paper. Any remaining limitations are entirely my responsibility. Copyright Springer Science+Business Media, LLC 2013

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  • Richard Sheehan, 2013. "Valuing Core Deposits," Journal of Financial Services Research, Springer;Western Finance Association, vol. 43(2), pages 197-220, April.
    • Handle: RePEc:kap:jfsres:v:43:y:2013:i:2:p:197-220
    DOI: 10.1007/s10693-012-0130-6
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    Cited by:

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    2. Arif, Salman & Donovan, John & Gopalan, Yadav & Morris, Arthur, 2024. "Pay for prudence," Journal of Accounting and Economics, Elsevier, vol. 77(1).
    3. John Ashton & Andros Gregoriou & Jerome V. Healy, 2013. "The relative influence of price and choice factors on retail deposit quantities," Working Papers 13006, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
    4. Baldwin, Kenneth & Alhalboni, Maryam, 2020. "The impact of profit-sharing investment accounts on shareholders’ wealth," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 69(C).
    5. Bindseil, Ulrich & Domnick, Clemens & Zeuner, Jörg, 2015. "Critique of accommodating central bank policies and the 'expropriation of the saver' - A review," Occasional Paper Series 161, European Central Bank.
    6. Chesney, Marc & Stromberg, Jacob & Wagner, Alexander F. & Wolff, Vincent, 2020. "Managerial incentives to take asset risk," Journal of Corporate Finance, Elsevier, vol. 65(C).
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    8. Allen N. Berger & Martien Lamers & Raluca A. Roman & Koen Schoors, 2023. "Supply and Demand Effects of Bank Bailouts: Depositors Need Not Apply and Need Not Run," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 55(6), pages 1397-1442, September.
    9. Jaakko Sääskilahti, 2018. "Retail Bank Interest Margins in Low Interest Rate Environments," Journal of Financial Services Research, Springer;Western Finance Association, vol. 53(1), pages 37-68, February.
    10. Konstantijn Maes & Thierry Timmermans, 2005. "Measuring the interest rate risk of Belgian regulated savings deposits," Financial Stability Review, National Bank of Belgium, vol. 3(1), pages 137-151, June.

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