A seminar by Professor George Pennacchi from UIUC
Title: The Effects of an Aging Population on the Structure of Bank Assets and Liabilities
Abstract: This paper presents empirical evidence on how population age affects a bank’s asset-liability structure. Consistent with a lifecycle model and localized deposit issuance and lending, it finds that banks operating in local areas with older populations rely less on wholesale sources of funding and issue more retail deposits that are paid relatively lower interest rates, particularly at longer maturities. Despite these banks’ deposit rates being lower and slower to adjust, their deposits are less likely to be withdrawn when market interest rates rise. Moreover, these banks’ assets are composed of more securities and fewer loans, particularly business and residential loans. They also choose securities and loans with relatively long maturities that significantly raise their asset-liability maturity gap. The paper’s findings are robust to the possibilities of economy-induced population age changes, non-local lending, and securitization.
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