Deposit Competition, Interbank Market, and Bank Profit

In this paper, we study how the interbank market could impact deposit competition and bank profits. We first document two stylized facts: net funding ratio is negatively correlated with interest margin (NIM), as well cost-to-income (CIR). To rationalize these facts, embed into a BLP model framework. The calibrated using Chinese listed banks’ data. A counterfactual experiment reveals that shutting down will lead to decline in NIM Our results indicate can facilitate specialization reduce intensity of competition.