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The effect of monetary policy on bank wholesale funding
We study how monetary policy affects the funding composition of the banking sector. When monetary tightening reduces the retail deposit supply, banks try to substitute the deposit outflows with wholesale funding to smooth their lending. Banks have varying degrees of accessibility to wholesale funding owing to financial frictions, hence large banks, or those with a greater reliance on wholesale funding, increase their wholesale funding more. Consequently, monetary tightening increases both the reliance on and the concentration of wholesale funding within the banking sector. Our findings also ...
Working Paper
Is bank debt special for the transmission of monetary policy? Evidence from the stock market
We combine existing balance sheet and stock market data with two new datasets to study whether, how much, and why bank lending to firms matters for the transmission of monetary policy. The first new dataset enables us to quantify the bank dependence of firms precisely, as the ratio of bank debt to total assets. We show that a two standard deviation increase in the bank dependence of a firm makes its stock price about 25 percent more responsive to monetary policy shocks. We explore the channels through which this effect occurs, and find that the stock prices of bank-dependent firms that borrow ...
Working Paper
Aggregate Liquidity Management
It has been largely acknowledged that monetary policy can affect borrowers and lenders differently. This paper investigates whether the distributional effects of monetary policy are an inherent feature of monetary economies with private credit instruments. In our framework, both money and credit instruments can potentially be used as media of exchange to overcome trading frictions in decentralized markets. Entrepreneurs have access to productive projects but face credit constraints due to limited pledgeability of their returns. Monetary policy affects the liquidity premium on private credit ...