Deposit market power, funding stability and long-term credit

Lei Li, Elena Loutskina and Philip E. Strahan

Journal of Monetary Economics, 2023, vol. 138, issue C, 14-30

Abstract: By increasing funding stability, deposit market power reduces banks’ funding risk over the cycle and provides the flexibility to originate long-term loans. Banks with deposit HHI one standard deviation above average extend loans with about 20% longer maturity than those one standard deviation below average. Deposit market power also allows banks to charge lower maturity premiums. The effects persist in the sample of zero-duration, floating rate loans. This has real effects: access to banks raising funds in less competitive markets improves growth in bank-dependent borrowers needing long-term finance. Deposit market power, by stabilizing bank funding costs, helps alleviate credit cycles.

Keywords: Deposits; Market power; Funding stability; Loan maturity; Maturity premiums (search for similar items in EconPapers)
JEL-codes: G21 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:138:y:2023:i:c:p:14-30

DOI: 10.1016/j.jmoneco.2023.04.004

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