Rights statement: This is the author’s version of a work that was accepted for publication in Journal of Financial Economics. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Financial Economics, 141, 1, 2021 DOI: 10.1016/j.jfineco.2020.07.021
Accepted author manuscript, 1.49 MB, PDF document
Available under license: CC BY-NC-ND: Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License
Final published version
Research output: Contribution to Journal/Magazine › Journal article › peer-review
| <mark>Journal publication date</mark> | 31/07/2021 |
|---|---|
| <mark>Journal</mark> | Journal of Financial Economics |
| Issue number | 1 |
| Volume | 141 |
| Number of pages | 21 |
| Pages (from-to) | 6-26 |
| Publication Status | Published |
| Early online date | 4/03/21 |
| <mark>Original language</mark> | English |
We provide new evidence on how deposit funding affects bank lending. For identification, we exploit the 2011 reform of the investment income tax in Italy that induced households to substitute bank bonds with deposits. We find that banks with larger increases in deposits expand the supply of credit lines and long-term credit to low-risk firms. Additional evidence indicates that these results are consistent with theories emphasizing the demandable nature of the deposit contract rather than theories stressing the stability of deposit funding due to government guarantees. In this regard, we show that banks under stress face large runs on retail deposits, but not on retail bonds.