Dynamics of Yield Gravity

The ability of yield to attract and direct deposits is the cornerstone of the banking system. However, as the findings in this paper demonstrate, the gravitational pull of yield is mediated by the level of financial stress and anxiety of depositors during times of economic downturn and stagnation. We describe an innovative Money Anxiety Index and the estimation of this index on a monthly basis. We find that interest rates on deposit accounts are much less effective in attracting and shifting deposits to term accounts. The dynamics of yield gravity increases interest expense on liquid accounts and hampers the ability of banks to comply with
Basal III Net Stable Funding Ratio (NSFR) requirement of one-year liquidity.