The Passthrough of Treasury Supply to Bank Deposit Funding

85 Pages Posted: 9 Jan 2019 Last revised: 10 Feb 2023

See all articles by Wenhao Li

Wenhao Li

University of Southern California - Marshall School of Business

Yiming Ma

Columbia University - Columbia Business School

Yang Zhao

Stanford University, Graduate School of Business

Date Written: January 17, 2023

Abstract

We demonstrate the passthrough of Treasury supply to bank deposit funding through bank market power. We show that an increase in Treasury supply crowds out bank deposits with disproportionate effects in more competitive deposit markets. The explanatory power of Treasury supply is not driven by monetary policy or banks' investment opportunities. Furthermore, a larger Treasury supply curtails bank lending and affects bank funding structure. We rationalize our empirical findings with a model of imperfect deposit competition. The model and empirics predict the opposite effect for monetary policy rate hikes, consistent with the deposits channel of monetary policy.

Keywords: safe assets, bank deposits, deposit competition, treasury supply, monetary policy

JEL Classification: G21, E50

Suggested Citation

Li, Wenhao and Ma, Yiming and Zhao, Yang, The Passthrough of Treasury Supply to Bank Deposit Funding (January 17, 2023). Columbia Business School Research Paper, USC Marshall School of Business Research Paper, Available at SSRN: https://ssrn.com/abstract=3311314 or http://dx.doi.org/10.2139/ssrn.3311314

Wenhao Li

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA California 90089
United States

HOME PAGE: http://www.wenhao-li.com

Yiming Ma (Contact Author)

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

Yang Zhao

Stanford University, Graduate School of Business ( email )

Stanford, CA
United States

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