Monetary Policy Transmission, Bank Market Power, and Income Source

Gödl-Hanisch, Isabel and Jordan Pandolfo

No 20180, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We provide empirical evidence on banks’ market power in financial services and its implications for monetary policy transmission through deposit rates. Banks with market power in financial services charge higher fees for their service and also offer lower deposit rates with less pass-through from monetary policy. We argue that this is the result of product tying: consumers must open a deposit account to access a bank’s financial services. We develop and calibrate a quantitative model of the U.S. banking industry where banks generate non-interest income from services in addition to a standard loan-deposit model. Counterfactuals emphasize the importance of non-interest income for credit supply, financial stability, and deposit pricing.

Keywords: market; power (search for similar items in EconPapers)
JEL-codes: D43 E44 E52 G21 G51 (search for similar items in EconPapers)
Date: 2025-04
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