The central bank’s drive to promote financial inclusion by encouraging the banks to accept small deposits from retail clients will not result in a less stable financial institution, a recent study found.
In a statement, the Bangko Sentral ng Pilipinas (BSP) said that the pursuit of financial inclusion was not likely to add to financial instability. It quoted a paper co-written by Dante Canlas, Eli Remolona and Johnny Noe Ravalo.
Titled “Do small bank deposits run more than large ones? Three event studies of contagion and financial inclusion,” this study was published by the Bank of International Settlements (BIS).
Using a technique referred to as difference-in-difference regression, the authors found there was no clear difference between the behavior of small depositors and that of large depositors.
The paper looked at deposits of different account sizes and examined whether those with the smallest balances—typically associated with financial inclusion—behaved differently from those with the biggest balances.
The paper also documented behavior where depositors withdrew their funds in seeming anticipation of possible forthcoming bank difficulties. The authors noted that this behavior was evident for depositors with the largest and smallest bank balances.
This suggests that pursuing financial inclusion through the creation of new but small deposits is not likely going to add to financial instability. —DAXIM L. LUCAS