Download This PaperUnintended Consequences of Unemployment Insurance Benefits: The Role of Banks
FEDS Working Paper No. 2021-027
Swiss Finance Institute Research Paper No. 19-44
69 Pages Posted: 2 Dec 2018 Last revised: 11 Jun 2021
There are 3 versions of this paper
Unintended Consequences of Unemployment Insurance Benefits: The Role of Banks
Unintended Consequences of Unemployment Insurance Benefits: The Role of Banks
Unintended Consequences of Unemployment Insurance Benefits: The Role of Banks
Date Written: November 7, 2018
Abstract
We use disaggregated U.S. data and a border discontinuity design to show that more generous unemployment insurance (UI) policies lower bank deposits. We test several channels that could explain this decline and find evidence consistent with households lowering their precautionary savings. Since deposits are the largest and most stable source of funding for banks, the decrease in deposits affects bank lending. Banks that raise deposits in states with generous UI policies squeeze their small business lending. Furthermore, counties that are served by these banks experience a higher unemployment rate and lower wage growth.
Keywords: Bank funding, Bank lending, Precautionary saving, Unemployment Insurance
JEL Classification: G21, J65, D14, J20
Suggested Citation: Suggested Citation
Ahmet Degerli (Contact Author)
Board of Governors of the Federal Reserve System ( email )
20th Street and Constitution Avenue NW
Washington, DC 20551
United States
Swiss Finance Institute ( email )
c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland