Narrow Results

In this study, we find savings deposits have contributed significantly to the effectiveness of regulation induced consolidation within the banking sector in so far as improvements in banking system structure, output, profitability and competitiveness are concerned. Specifically, we find savings deposits are key parameters in the transition from a banking structure within which profitability is primarily determined by liquidity during the pre-consolidation period (2007–2008) to a banking structure within which profitability is primarily a function of loan portfolio growth (output) during the post-consolidation period (2010–2012). In spite of the increase in importance of savings deposits for banking system competition, output, or profitability during the post-consolidation period, savings deposit rates have decreased by about 50% between the pre- and post-consolidation periods. Interest rates on savings deposits also do not lie on the efficiency frontier for loan production. Combined, our findings indicate the benefits of consolidation that accrue from savings deposits have yet to translate into social welfare benefits for banks' retail customers.

Despite their predictable and regular incomes, Filipino domestic workers in Hong Kong, China commonly finance large expenses through interest-bearing loans rather than savings. Our analysis of survey data and records of a credit cooperative for migrant workers suggests that this cannot be explained by their inability to save, financial illiteracy, short time horizon, or limited liability. Instead, we speculate that the strict schedules and high interest rates of these loans create a disciplining effect that these individuals find desirable. This may help them avoid unnecessary consumption or demands from their social network. However, interventions should also consider that these workers often receive nonmonetary reciprocal benefits from members of their social network.