Evidence of early withdrawal in time deposit portfolios

    Authors

    J. H. Gilkeson; J. A. List;C. K. Ruff

    Comments

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    Abbreviated Journal Title

    J. Financ. Serv. Res.

    Keywords

    BANK; MARKET; RIGIDITY; Business, Finance

    Abstract

    The embedded options found in some securities are known to have significant impact on product pricing, secondary market valuation, and risk measurement and management. The option to withdraw commonly found in bank deposits is one of the least studied of these. We help to fill this gap by examining the level and interest rate sensitivity of early withdrawals of retail time deposits using panel data from the Thrift Financial Report. We find that longer-maturity time deposit portfolios commonly experience early withdrawals at economically significant levels. Further, we rnd that depositors respond positively, with increased levels of early withdrawal, to the reinvestment incentive they face when new deposit rates rise. These findings increase our understanding of consumer behavior with regard to financial products and have significant implications for the competitive pricing of deposit products and the management of bank interest rate risk.

    Journal Title

    Journal of Financial Services Research

    Volume

    15

    Issue/Number

    2

    Publication Date

    1-1-1999

    Document Type

    Article

    Language

    English

    First Page

    103

    Last Page

    122

    WOS Identifier

    WOS:000082593700002

    ISSN

    0920-8550

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