Uniform Rate Setting and the Deposit Channel

59 Pages Posted: 21 Jun 2022 Last revised: 27 Jan 2024

See all articles by Juliane Begenau

Juliane Begenau

Stanford University - Graduate School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Erik Stafford

Harvard Business School - Finance Unit

Date Written: December 30, 2023

Abstract

US banks predominantly use uniform deposit rate setting policies, particularly the largest banks. Uniform rate setting ignores local market concentration, and is therefore inconsistent with the identification strategy used to provide cross-sectional evidence of the deposit channel. Our reexamination of the various components of the deposit channel finds little evidence of a deposit price driven deposit channel. We find evidence of substantial funding substitution in the aggregate. Several reliable relationships in the cross section of banks may not aggregate because of the extreme bank size distribution and the differential behavior of small and large banks.

Keywords: Deposit Market Power, Deposit Channel, Monetary Policy Transmission, Rate Setting

JEL Classification: G21, L11

Suggested Citation

Begenau, Juliane and Stafford, Erik, Uniform Rate Setting and the Deposit Channel (December 30, 2023). Available at SSRN: https://ssrn.com/abstract=4136858 or http://dx.doi.org/10.2139/ssrn.4136858

Juliane Begenau (Contact Author)

Stanford University - Graduate School of Business ( email )

Stanford, CA 94305
United States
6507245661 (Phone)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Erik Stafford

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States
617-495-8064 (Phone)
617-496-7357 (Fax)

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