Market Rate Versus Fixed Rate Demand Deposits

By Charles Jacklin
1993| Working Paper No. 1265

In an economy with uninsured banks, market rate deposits are shown to provide services identical to fixed rate deposits without risking banking panics as long as there is not both aggregate uncertainty about liquidity demands and asymmetric information about bank asset quality. However, if both assets and information revealed through market prices. The analysis may explain the evolution of fixed rate deposits before the introduction of deposit insurance. Moreover, it provides currently relevant insights regarding deposit contract forms and deposit insurance.