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Deposit market power, funding stability and long-term credit

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  • Li, Lei
  • Loutskina, Elena
  • Strahan, Philip E.

Abstract

By increasing funding stability, deposit market power reduces banks’ funding risk over the cycle and provides the flexibility to originate long-term loans. Banks with deposit HHI one standard deviation above average extend loans with about 20% longer maturity than those one standard deviation below average. Deposit market power also allows banks to charge lower maturity premiums. The effects persist in the sample of zero-duration, floating rate loans. This has real effects: access to banks raising funds in less competitive markets improves growth in bank-dependent borrowers needing long-term finance. Deposit market power, by stabilizing bank funding costs, helps alleviate credit cycles.

Suggested Citation

  • Li, Lei & Loutskina, Elena & Strahan, Philip E., 2023. "Deposit market power, funding stability and long-term credit," Journal of Monetary Economics, Elsevier, vol. 138(C), pages 14-30.
    • Handle: RePEc:eee:moneco:v:138:y:2023:i:c:p:14-30
    DOI: 10.1016/j.jmoneco.2023.04.004
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    2. Sebastian Doerr, "undated". "Bank geographic diversification and funding stability," BIS Working Papers 1221, Bank for International Settlements.

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    More about this item

    Keywords

    Deposits; Market power; Funding stability; Loan maturity; Maturity premiums;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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