Nicola Limodio (Bocconi University)

"Liquidity Requirements and Depositor Sophistication: Evidence from Ethiopia"

18 December 2017, 12:45 pm

Abstract

Liquidity requirements can increase depositor repayment in bad states and promote the supply of bank deposits, particularly among sophisticated individuals. I exploit an unexpected policy change by the Ethiopian Central Bank that boosted banks’ liquid assets by 25% in one quarter of 2011. Two unique datasets permit to investigate this hypothesis. First, through a depositor-level panel, I show that depositors in the highest tercile and with a university degree significantly increase their deposits following the policy. Second, a bank branch survey highlights that branches that opened after the policy and in cities hosting a university exhibit significantly more deposits.