Sticky Deposit Rates and Allocative Effects of Monetary Policy

Abstract

This paper documents that monetary policy affects credit supply through banks' cost of funding. Using administrative credit-registry and regulatory bank data, we find that banks can incur an increase in their funding costs of at least 30 basis points before they adjust their lending. For identification, we exploit the existence of regulated-deposit accounts in France whose interest rates are set by the government and are, thus, not directly affected by the monetary-policy rate. When banks' funding cost increases and they contract their lending, we observe portfolio reallocations consistent with risk shifting: banks that depend on regulated deposits lend less to large firms, and relatively more to small firms and entrepreneurs. 4

Lost in Negative Territory? Search for Yield!

“…If deposit rates turned negative, firms and households might decide to substitute their deposit holdings with cash. The downward rigidity of deposit rates may be further reinforced by regulation or law (Duquerroy et al, 2020). Overall, this may lead banks not to fully transmit the interest rate cut on borrowers of new loans (Eggertsson et al, 2019).…”

Insurance Pricing, Distortions, and Moral Hazard: Quasi-Experimental Evidence from Deposit Insurance

“…This result is consistent with the present article's finding on shifting funding sources in response to pricing, though their identification strategy and analysis time period differ from those of the current article. Other related papers include Keating and Macchiavelli (2017), Basten and Mariathasan (2018), Heider, Saidi, and Schepens (2019), Banegas and Tase (2020), Duquerroy, Matray, and Saidi (2020), and Kandrac and Schlusche (2021). Besides differences in the precise research questions and effects estimated, the present article is unique in using the disparity in deposit insurance premiums between BIF and SAIF members as a quasi-experiment to study the effects of the premiums on bank behavior.…”