The rise of internet-only banks: Analyzing the bias in cross-prefectural money demand elasticity

• Published in: Japan and the world economy Vol. 71; p. 101268
• Main Author: Fujiki, Hiroshi
• Format: Journal Article
• Language: English
• Published: Elsevier B.V 01.09.2024
• Subjects: cross-sectional money demand; digitization; income elasticity of money demand; Internet-only banks; regional data; Internet-only banks; regional data; E41; digitization; G21; income elasticity of money demand; cross-sectional money demand
• ISSN: 0922-1425
• DOI: 10.1016/j.japwor.2024.101268

In 2021, new bank forms, such as Internet-only banks, amassed 2 % of Japanese deposits. Tokyo’s statistics since 2005 encompass deposits in such banks, regardless of depositor location. These Tokyo-based banks operate branchless. Elevated deposits reported in Tokyo, Japan’s highest-income prefecture, could skew the income elasticity of money demand upwards in a cross-sectional regression. This study proposes reallocating Tokyo’s bank deposits to all prefectures to quantify the bias. Additionally, it suggests aggregating fifteen prefectures into five areas to address discrepancies between the deposit and income locations owing to cross-prefectural commuting. Adjusting for new bank deposits, the income elasticity of money demand decreased from 0.899 to 0.872 in March 2021, with overestimation increasing since March 2005. These findings suggest the adequacy of regional statistics in reflecting economic behavior in the digital era, warranting reevaluation. •New banks, like Internet-only banks, collect 2 % of Japan’s deposits.•All deposits in these banks are reported in Tokyo prefecture.•Non-Tokyo residents’ deposits affect regional money demand elasticity.•Bias was 0.03 in 2021 and will increase with more users of Internet-only banks.