The Large Deposit Premium and the Redistribution of Depositor Compensation

<jats:p>We provide the first long-run estimates of the Large Deposit Premium (LDP) - the difference between the rates paid on large and small deposits by U.S. banks. The premium rises by over 400 basis points from its early-1990s trough to its 2022-23 peak, turning a discount on large deposits into a substantial premium, and increases 27 basis points per 100-basis-point rise in the federal funds rate. The LDP's rise is explained by proxies for depositor bargaining power rather than by bank risk. The repricing has large distributional effects, cutting small depositors' share of deposit compensation from 80 to 40 percent between 1990 and 2026.</jats:p>