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

65 Pages Posted: 11 Oct 2021 Last revised: 12 Oct 2023

See all articles by Sergey Sarkisyan

Sergey Sarkisyan

The Wharton School, University of Pennsylvania

Tasaneeya Viratyosin

University of Pennsylvania

Date Written: October 11, 2023

Abstract

We provide causal 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. They, therefore, 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 inflows 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: International transmission, monetary policy, deposit channel, banking

JEL Classification: E52, F23, F34, G21

Suggested Citation

Sarkisyan, Sergey and Viratyosin, Tasaneeya, Local Power, Global Reach: The Influence of Deposit Market Power on International Banking (October 11, 2023). 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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