Bank liabilities and the monetary transmission mechanism

Steven Sumner () and Guy Yamashiro ()
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Steven Sumner: Department of Economics, School of Business, University of San Diego
Guy Yamashiro: California State University, Long Beach

Economics Bulletin, 2011, vol. 31, issue 2, 1413-1431

Abstract: Using two sources of data on commercial bank liabilities we examine the behavior of various components of deposits following a monetary tightening (downturn) as well as a nonmonetary downturn equal in magnitude to the monetary downturn in order to better understand the portfolio behavior of commercial banks. We find that the increase in total deposits during a monetary tightening (when output is low and interest rates are high) is attributable to an increase in small time deposits and that large time deposits and demand deposits exhibit a decrease. This suggests that banks are able to, at least partially, offset the potentially adverse effects of a monetary tightening on their balance sheet by borrowing and raising additional small time deposits. Further, non-monetary downturns, when both interest rates and output are low, seem to have little effect on the liability position of banks.

JEL-codes: E5 (search for similar items in EconPapers)
Date: 2011-05-12
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