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Related bank deposits: Good or bad for stability?

Author

Listed:
  • Aldy Fariz Achsanta

    (Universitas Sebelas Maret
    Universitas Sebelas Maret)

  • Tastaftiyan Risfandy

    (Universitas Sebelas Maret
    Universitas Sebelas Maret)

  • Putra Pamungkas

    (Universitas Sebelas Maret
    Universitas Sebelas Maret)

  • Irwan Trinugroho

    (Universitas Sebelas Maret
    Universitas Sebelas Maret)

  • Herman Saheruddin

    (Indonesia Deposit Insurance Corporation)

Abstract

This paper examined the impact of related deposit transactions on banks' risk-taking and financial stability by considering the ratio of related deposits over total deposits to capture banks' dependency on deposits from their related parties. Our sample consisted of 90 Indonesian banks and covered the period 2009–2019. Our finding showed that related bank deposits significantly increased the z-score. Our deeper investigation showed that the effect of related deposits when we split the sample based on size. We find that related deposits increase the z-score only for small banks. Our results provide insights and noteworthy policy implications for regulators to take into account related party transactions in deposits to have greater control over the behavior of bank's risk-taking and to maintain the soundness of the banks, and mitigate financial instability.

Suggested Citation

  • Aldy Fariz Achsanta & Tastaftiyan Risfandy & Putra Pamungkas & Irwan Trinugroho & Herman Saheruddin, 2021. "Related bank deposits: Good or bad for stability?," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 11(4), pages 735-751, December.
    • Handle: RePEc:spr:eurase:v:11:y:2021:i:4:d:10.1007_s40822-021-00184-3
    DOI: 10.1007/s40822-021-00184-3
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