The Effect of Monetary Policy on Bank Wholesale Funding
84 Pages Posted: 12 Jan 2016 Last revised: 29 Jul 2019
Date Written: June 20, 2019
We study how monetary policy affects the funding composition of the banking sector. When monetary tightening reduces the supply of retail deposits, banks attempt to substitute wholesale funding for deposit outflows to smooth their lending. Due to financial frictions, banks have varying degrees of access to wholesale funding. Therefore, large banks, or those with greater reliance on wholesale funding, increase their wholesale funding more. Consequently, monetary tightening increases both the reliance on and the concentration of wholesale funding within the banking sector. Our findings also suggest that liquidity requirements could bolster monetary policy transmission through the bank lending channel.
Keywords: Wholesale Funding Substitutions, Cross-sectional Heterogeniety, Liquidity Regulation
JEL Classification: G21, G28, E44, D12
Suggested Citation: Suggested Citation