Deposit Competition, Interbank Market, and Bank Profit

Bo Jiang*, Hector Tzavellas, Xiaoying Yang

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

1 Citation (Scopus)


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

Original languageEnglish
Article number194
JournalJournal of Risk and Financial Management
Issue number5
Publication statusPublished - May 2022


  • BLP
  • Bank Profitability
  • deposit competition
  • interbank market
  • structural estimation


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