Deposit market concentration and monetary transmission: Evidence from the euro area

Stephen Kho

European Economic Review, 2025, vol. 173, issue C

Abstract: I study the transmission of monetary policy to deposit rates in the euro area with a focus on asymmetries and the role of banking sector concentration. Using a local projections framework with 2003–2023 country-level and bank-level data for thirteen euro area member states, I find that deposit rates respond symmetrically to an unexpected tightening or easing of monetary policy. However, more concentrated domestic banking sectors do pass-on unexpected monetary tightening (easing) more slowly (quickly) than less concentrated banking sectors, which contributes to a temporary divergence of deposit rates across the euro area. These results suggest that heterogeneity in the degree of banking sector concentration matters for the transmission of monetary policy to deposit rates, which in turn may affect banking sector profitability.

Keywords: Monetary policy; Deposit rates; Banking sector; Market power (search for similar items in EconPapers)
JEL-codes: D40 E43 E52 G21 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:173:y:2025:i:c:s0014292124002629

DOI: 10.1016/j.euroecorev.2024.104933

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