Local Power, Global Reach: The Influence of Deposit Market Power on International Banking

67 Pages Posted: 11 Oct 2021 Last revised: 14 Mar 2024

See all articles by Sergey Sarkisyan

Sergey Sarkisyan

The Wharton School, University of Pennsylvania

Tasaneeya Viratyosin

University of Pennsylvania

Date Written: March 11, 2024

Abstract

We provide evidence that the market power that global banks hold over domestic US deposits drives their operations abroad. After a contractionary monetary shock, global banks with high local deposit market power increase bank deposit spreads and experience outflows of domestic deposits. Since global banks have assets abroad, they increase flows from foreign branches to finance domestic lending but reduce lending abroad, thus cutting domestic lending less than local banks: a 1 p.p. US monetary shock leads to $180 billion in flows from foreign branches to US offices. Our results demonstrate that the local deposit market power of global banks has significant repercussions on their international operations.

Keywords: Deposit channel, banking, monetary policy, global banks

JEL Classification: G21, E52, F34

Suggested Citation

Sarkisyan, Sergey and Viratyosin, Tasaneeya, Local Power, Global Reach: The Influence of Deposit Market Power on International Banking (March 11, 2024). Jacobs Levy Equity Management Center for Quantitative Financial Research Paper, Available at SSRN: https://ssrn.com/abstract=3938284 or http://dx.doi.org/10.2139/ssrn.3938284

Sergey Sarkisyan (Contact Author)

The Wharton School, University of Pennsylvania ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States

Tasaneeya Viratyosin

University of Pennsylvania

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