Deposit Market Power, Funding Stability and Long-Term Credit

Lei Li, Elena Loutskina and Philip E. Strahan

No 26163, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper shows that banks raising deposits in more concentrated markets have more funding stability, which enhances banks’ ability to extend longer-maturity loans. We show that banks raising deposits in concentrated markets exhibit less pro-cyclical financing costs and profits, which in turn reduces the funding risk of originating long-term illiquid loans. Consistently, banks with deposit HHI one standard deviation above average extend loans with about 20% longer maturity than those with deposit HHI one standard deviation below average. Deposit concentration also allows banks to charge lower maturity premiums. Access to banks raising funds in concentrated markets improves growth in industries traditionally reliant on long-term credit.

JEL-codes: G2 (search for similar items in EconPapers)
Date: 2019-08
New Economics Papers: this item is included in nep-ban and nep-cfn
Note: CF
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Citations: View citations in EconPapers (12)

Published as Lei Li & Elena Loutskina & Philip E. Strahan, 2023. "Deposit Market Power, Funding Stability and Long-Term Credit," Journal of Monetary Economics, .

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