Fintech Deregulation, Competition, and Bank Deposit Costs

We analyze how the deregulation of Fintech investing affects banks’ deposit funding costs in the US. Using the exogenous removal of marketplace investing restrictions by US states, we show the cost of bank deposits increases by approximately 2.26%. The effects are attributable to deregulation provoking more intense deposit competition that reduces deposit supply by 2.1%. Large banks and those with geographically diversified branch networks can mitigate the effects of Fintech law through lower reliance on deposit funding and sourcing deposits from less competitive markets. The findings highlight the unintended consequences of the growing Fintech sector on banks