Local Power, Global Reach: The Influence of Deposit Market Power on International Banking
65 Pages Posted: 11 Oct 2021 Last revised: 12 Oct 2023
Date Written: October 11, 2023
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: Suggested Citation