TY  - BOOK
AU  - Drechsler,Itamar
AU  - Savov,Alexi
AU  - Schnabl,Philipp
ED  - National Bureau of Economic Research.
TI  - The Deposits Channel of Monetary Policy
T2  - NBER working paper series
PY  - 2016///
CY  - Cambridge, Mass.
PB  - National Bureau of Economic Research
N1  - April 2016; Hardcopy version available to institutional subscribers
N2  - We present a new channel for the transmission of monetary policy, the deposits channel. We show that when the Fed funds rate rises, banks widen the spreads they charge on deposits, and deposits flow out of the banking system. We present a model where this is due to market power in deposit markets. Consistent with the market power mechanism, deposit spreads increase more and deposits flow out more in concentrated markets. This is true even when we control for lending opportunities by only comparing different branches of the same bank. Since deposits are the main source of liquid assets for households, the deposits channel can explain the observed strong relationship between the liquidity premium and the Fed funds rate. Since deposits are also a uniquely stable funding source for banks, the deposits channel impacts bank lending. When the Fed funds rate rises, banks that raise deposits in concentrated markets contract their lending by more than other banks. Our estimates imply that the deposits channel can account for the entire transmission of monetary policy through bank balance sheets
UR  - https://www.nber.org/papers/w22152
UR  - http://dx.doi.org/10.3386/w22152
ER  -