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Why are interest rates on bank deposits so low?

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  • Busch, Ramona
  • Memmel, Christoph

Abstract

Using granular data of German banks for the 2003 to 2018 period, we analyse the determinants of bank rates on retail deposits. We find that a bank's rate on sight deposits is especially low if the bank operates in rural districts, if it is not exposed to strong competition and if it provides much service. Regarding the rates on term deposits, we find that the bank's cost situation plays a role: if the bank's costs are high, its deposit rates are low. By transferring concepts from portfolio theory to the pass-through topic, we show that replicating portfolio approaches, which are used mainly by smallbanks, are often equivalent to regression approaches and that,under some assumptions, the classical regression approach corresponds to a replicating portfolio approach.

Suggested Citation

  • Busch, Ramona & Memmel, Christoph, 2021. "Why are interest rates on bank deposits so low?," Discussion Papers 46/2021, Deutsche Bundesbank.
    • Handle: RePEc:zbw:bubdps:462021
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    References listed on IDEAS

    as
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    Cited by:

    1. Memmel, Christoph, 2023. "Abschätzung des Zinseinkommens der Banken in Deutschland," Technical Papers 05/2023, Deutsche Bundesbank.
    2. Vollmar, Steffen & Wening, Fabian, 2024. "The impact of CBDC on a deposit-dependent banking system," Journal of Financial Stability, Elsevier, vol. 73(C).

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    More about this item

    Keywords

    Pass through; bank deposits; replicating portfolio approach;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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