Deposit Competition and Financial Fragility: Evidence from the US Banking Sector

Abstract

PRELIMINARY AND INCOMPLETE, PLEASE DO NOT CITE WITHOUT PERMISSION. We develop and estimate an empirical model of the U.S. banking sector using a new data set covering the largest U.S. banks over the period 2002-2013. Our model incorporates insured depositors and run-prone uninsured depositors who have rich preferences over dierentiated banks. Banks compete for deposits in the spirit of Matutes and Vives (1996) and can endogenously default. We estimate demand for uninsured