Households' Liquidity Management and the Endogenous Sorting of Bank Depositor Types

Younggeun Yoo, Economics PhD Student

This project bridges household finance and banking to explain depositor behavior and evaluate welfare implications of changes in banking industry. I develop a structural model in which households’ preferences for bank attributes - such as yield and convenience - arise endogenously from optimal liquidity management under income and expenditure uncertainty. Households then decide how much and where to deposit based on these preferences. I classify the U.S. population into twelve demographic groups by income, age, and education, and construct a dataset capturing each bank’s depositor composition - both in number of depositors and total deposits by group. Using this dataset, I estimate the model to analyze (i) welfare e↵ects of FDIC deposit insurance across groups, (ii) heterogeneity in perceived risk-free rates, (iii) explanations for yield-seeking and low stock market participation among low-income households, and (iv) how depositor composition shapes strategic complementarities and fragility in the banking system.