Monetary Policy, HTM Securities, and Uninsured Deposit Withdrawals

Özlem Dursun- de Neef, Steven Ongena and Alexander Schandlbauer
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Özlem Dursun- de Neef: Goethe University
Alexander Schandlbauer: University of Southern Denmark ; Danish Finance Institute

No 23-40, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: This paper shows that an increase in the Fed funds rate is associated with an increase in banks' unrealized losses due to their held-to-maturity (HTM) portfolios. This exposes banks to large uninsured deposit withdrawals as the depositors seek a flight-to-safety and, at the same time, to a reduction in their stock prices as the investors become concerned about possible losses. This relationship is more pronounced for banks with less hedging against the interest rate risk and for banks with lower capital ratios. Our results highlight the importance of banks' HTM securities on how monetary policy affects their uninsured deposits and stock prices.

Keywords: Interest rate risk; HTM securities; Uninsured deposits; Monetary policy (search for similar items in EconPapers)
JEL-codes: E52 E58 G21 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2023-04, Revised 2023-06
New Economics Papers: this item is included in nep-cba and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2340

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