How Monetary Policy Changes Bank Liability Structure and Funding Cost

Mattia Girotti

Working papers from Banque de France

Abstract: U.S. banks obtain most of their funding from a combination of zero-interest deposits and interest-bearing deposits. Using local demographic variations as instruments for banks' liability composition, I show that when monetary policy tightens, banks with a larger proportion of zero-interest deposits on their balance sheet experience larger increases in their interest-bearing deposit rate. This happens because tight monetary policy reduces the quantity of zero-interest deposits available to banks. Banks react issuing more interest-bearing deposits, but pay an interest rate that increases with the quantity being borrowed. This new evidence supports the existence of the bank lending channel of monetary policy.

Keywords: Banks; Deposits; Lending Channel; Monetary Policy. (search for similar items in EconPapers)
JEL-codes: E44 E50 G21 L16 (search for similar items in EconPapers)
Pages: 57 pages
Date: 2016
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: How monetary policy changes bank liability structure and funding cost (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:590

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