Bank deposit rate clustering: Theory and empirical evidence

Charles Kahn, George Pennacchi, Ben Sopranzetti

Research output: Contribution to journalArticlepeer-review


Like security prices, retail deposit interest rates cluster around integers and "even" fractions. However, explanations for security price clustering are incompatible with deposit rate clustering. A theory based on the limited recall of retail depositors is proposed. It predicts that banks tend to set rates at integers and that rates are "sticky" at these levels. The propensity for integer rates increases with the level of wholesale interest rates and deposit market concentration. When banks set non-integer rates, rates are more likely to be just above, rather than just below, integers. The paper finds substantial empirical support for the theory's implications.

Original languageEnglish (US)
Pages (from-to)2185-2214
Number of pages30
JournalJournal of Finance
Issue number6
StatePublished - Dec 1999
Externally publishedYes

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


Dive into the research topics of 'Bank deposit rate clustering: Theory and empirical evidence'. Together they form a unique fingerprint.

Cite this