Monetary Policy Transmission through Online Banks

Isil Erel, Jack Liebersohn, Constantine Yannelis and Samuel Earnest
Additional contact information
Isil Erel: Ohio State U and ECGI
Jack Liebersohn: U of California, Irvine
Samuel Earnest: U of Chicago

Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics

Abstract: Financial technology has reshaped commercial banking. It has the potential to radically alter the transmission of monetary policy by lowering search costs and expanding banking markets. This paper studies the reaction of online banks to changes in the federal funds rate. We find that these banks increase rates that they offer on deposits significantly more than traditional banks do. A 100 basis points increase in the federal funds rate leads to a 30 basis points larger increase in the rates of online banks relative to traditional banks. Consistent with the rate movements, online bank deposits experience inflows, while traditional banks experience outflows during monetary tightening in 2022. Results are similar across banking markets of different competitiveness and demographics, but they vary with the stickiness of banking relationships. Our findings shed new light on the role of online banks in interest rate passthrough and the deposit channel of monetary policy.

JEL-codes: E52 E58 G21 G23 G28 (search for similar items in EconPapers)
Date: 2023-05
New Economics Papers: this item is included in nep-mon and nep-pay
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Citations: View citations in EconPapers (5)

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Working Paper: Monetary Policy Transmission Through Online Banks (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:ohidic:2023-15

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