Deposit Rate Advantages at the Largest Banks

We estimate differences in funding costs between the largest banks and the rest of the industry. Using deposit rates offered at the branch level, we eliminate many non-risk-related differences between banks. We document significant and persistent pricing advantages at the largest banks for comparable deposit products and deposit risk premiums. Between 2007 and 2008, the risk premium paid by the largest banks was 39 bps lower than the risk premium at other banks under the baseline estimate after controlling for common risk variables. These findings are consistent with an economically significant too-big-to-fail subsidy paid to the largest banks through lower risk premiums on uninsured deposits.