Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/130646
Authors: 
Choi, Dong Beom
Choi, Hyun-Soo
Year of Publication: 
2016
Series/Report no.: 
Staff Report, Federal Reserve Bank of New York 759
Abstract: 
We study how monetary policy affects the funding composition of the banking sector. When monetary tightening reduces the retail deposit supply owing to, for example, a decrease in bank reserves or in money demand, banks try to substitute the deposit outflows with more wholesale funding in order to mitigate the policy impact on their lending. Banks have varying degrees of accessibility to wholesale funding sources because of financial frictions, and those banks that are large or that have a greater reliance on wholesale funding increase their wholesale funding more. As a result, monetary tightening increases both the reliance on and the concentration of wholesale funding within the banking sector, indicating that monetary tightening could increase systemic risk. Our findings also suggest that introducing liquidity requirements can bolster monetary policy transmission through the bank lending channel by limiting the funding substitution of large banks.
Subjects: 
bank funding
monetary policy transmission
systemic stability
liquidity regulation
bank lending channel
JEL: 
E52
E58
G21
G28
Document Type: 
Working Paper

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