Overdraft banking: An empirical analysis

This study employs, for the first time, regression analysis to examine the behavior of the utilization rate of overdraft limits over time and at the aggregate level. Applying Sprenkle and Millers's (1980) theoretical model to Israeli data, the empirical results show that the wide fluctuations in utilization rates can be well explained. It is therefore possible for the monetary authorities and banks to predict changes in overdraft utilization rates and take the necessary corrective measures. This, in turn, implies that overdraft banking does not hamper the ability of the central and private banks to control credit and reserves.