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Korean Academic Society of Business Administration
[ Article ]
korean management review - Vol. 49, No. 5, pp.1233-1268
ISSN: 1226-1874 (Print)
Print publication date 31 Oct 2020
Received 10 Apr 2020 Revised 16 Jun 2020 Accepted 09 Jul 2020
DOI: https://doi.org/10.17287/kmr.2020.49.5.1233

국내은행의 저원가성 예금 수신이 여신취급 행태에 미치는 영향

Gun Jae Lee
(First Author) Hana Bank Hana Institute of Finance mcqueen24@naver.com
The Effects of Demand Deposit Financing on Banks’ Lending Behavior


Copyright 2011 THE KOREAN ACADEMIC SOCIETY OF BUSINESS ADMINISTRATION
This is an open access article distributed under the terms of the Creative Commons Attribution License 4.0, which permits unrestricted, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

The prolonged period of low interest rates has been translating into compressed net interest margins for banks. In order to protect their margins, banks are making efforts to expand a low cost funding base, which includes raising more demand deposits. However, demand deposit financing gives rise to unanticipated withdrawal risk which makes banks more fragile (Diamond and Rajan, 2001). Banks may diminish this fragility by taking less risk on the asset side (Song and Thakor, 2007). This study examines whether demand deposit financing affects banks' lending behavior. The empirical results show that newly issued demand deposits do not influence bank loan supply until the next quarter, making them a less effective funding source for making loans than saving deposits. The study finds that funds financed by demand deposits have a higher likelihood of withdrawal and banks hold a more balance of liquid assets to accommodate demand depositors’ liquidity needs. It makes sense that with increased demand deposit financing, banks take a more prudent “wait and see” approach and are more reluctant to finance new loans immediately. The study provides empirical evidence for an explicit link between banks’ deposit structure and their lending behavior and the results have significant implications for banks' financing strategies.

Keywords:

bank, demand deposit, lending, liquidity, net interest margin

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• The author Gun Jae Lee is a research fellow at the Hana Bank Hana Institute of Finance. He received his PhD in business administration from Korea University and his BS and MS in business administration from Seoul National University. Since 2002, He has worked at Samil PWC, Financial Supervisory Service, Bank of Korea and KB Kookmin Bank. His research focuses on financial instruments.