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Monetary Policy Transmission Through Online Banks

Author

Listed:
  • Isil Erel
  • Jack Liebersohn
  • Constantine Yannelis
  • Samuel Earnest

Abstract

Financial technology has reshaped commercial banking. It has the potential to radically alter the transmission of monetary policy by lowering search costs and expanding bank markets. This paper studies the reaction of online banks to changes in federal fund rates. We find that these banks increase rates that they offer on deposits significantly more than traditional banks do. A 100 basis points increase in the federal fund rate leads to a 30 basis points larger increase in rates of online banks. Consistent with the rate movements, online bank deposits experience inflows, while traditional banks experience outflows during monetary tightening in 2022. The findings are consistent across banking markets of different competitiveness and demographics. Our findings shed new light on the role of online banks in interest rate pass-through and deposit channel of monetary policy.

Suggested Citation

  • Isil Erel & Jack Liebersohn & Constantine Yannelis & Samuel Earnest, 2023. "Monetary Policy Transmission Through Online Banks," NBER Working Papers 31380, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:31380
    Note: CF ME
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    Cited by:

    1. Bindseil, Ulrich & Senner, Richard, 2024. "Destabilisation of bank deposits across destinations: assessment and policy implications," Working Paper Series 2887, European Central Bank.
    2. Hasan, Iftekhar & Li, Xiang & Takalo, Tuomas, 2023. "Technological innovation and the bank lending channel of monetary policy transmission," IWH Discussion Papers 14/2021, Halle Institute for Economic Research (IWH), revised 2023.
    3. Fascione, Luisa & Oosterhek, Koen & Scheubel, Beatrice & Stracca, Livio & Wildmann, Nadya, 2024. "Keep calm, but watch the outliers: deposit flows in recent crisis episodes and beyond," Occasional Paper Series 361, European Central Bank.
    4. Thorsten Beck, 2024. "European Banking after the 2023 Crisis," EconPol Forum, CESifo, vol. 25(05), pages 48-51, September.
    5. Claudio Daminato & Massimo Filippini & Fabio Haufler, 2024. "Digitalization and Retirement Contribution Behavior: Evidence from Administrative Data," The Review of Financial Studies, Society for Financial Studies, vol. 37(8), pages 2510-2549.

    More about this item

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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