Monetary Policy Transmission Through Cross-Selling Banks

Abstract

We show how expected loan cross-selling motivates banks to set lower deposit spreads to onboard and retain depositors, more the lower are policy rates and the greater cross-selling potential. With data on every Norwegian bank household relationship, we then establish empirically how the same bank facing the same loan demand exhibits a higher deposit spread beta and a more negative deposit growth beta if its depositors are more likely to borrow later. Policy rates affect the value of future cross-selling via discounting and via loan volumes and spreads. Cross-selling explains how monetary policy affects deposit spreads, deposit and loan growth.

Keywords: deposit pricing, deposit spread, deposit channel of monetary policy, cross-selling, multi-product banking, multi-period banking, loan pricing

JEL Classification: D14, D43, E52, G21, G51