The central bank’s drive to promote financial inclusion by encouraging banks to accept small deposits from retail clients will not necessarily result in financial instability, a recent study found.
In a statement, the Bangko Sentral ng Pilipinas said the pursuit of financial inclusion is not likely to add to financial instability, according to a paper co-written by Dante Canlas, Eli Remolona, and Johnny Noe Ravalo.
Entitled “Do small bank deposits run more than large ones? Three event studies of contagion and financial inclusion,” the study was published by the Bank of International Settlements (BIS).
Using a technique referred to as difference-in-difference regression, the authors find that there is no clear difference between the behavior of small depositors and that of large depositors.
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The paper looks at deposits of different account sizes and examines whether those with the smallest balances – typically associated with financial inclusion – behave differently from those with the biggest balances.
The paper also documents the tendency of depositors to withdraw funds in anticipation of possible forthcoming bank difficulties. The authors noted that this behavior was evident both for depositors with the largest and smallest bank balances.
