What explains the lack of monetary policy influence on bank holding companies?

In this paper, we investigate how monetary policy innovations affect the equity returns of bank holding companies (BHCs). We also examine bank characteristics to determine what explains the cross‐sectional and time‐series variation in the returns' sensitivity. Similar to non‐financial firms, we find that only unanticipated components affect bank equity returns; however, this effect is absent in the second half of our sample period. Smaller, less liquid banks have higher sensitivity; a higher ratio of time deposits to total deposits reduces this sensitivity. A higher ratio of non‐interest income to total income also reduces this sensitivity, while capital‐constrained banks have a higher sensitivity to monetary policy innovations. We argue that a higher dependence on non‐interest income and the use of interest rate derivatives together may explain the disappearing influence of monetary policy on these BHCs.