15:00 - 16:30
Virtual Lecture: Deposits Market Power, Funding Stability, and Long-Term Credit
This paper shows that by reducing the cyclicality of deposit costs and internal funds (profits), deposit market power reduces banks’ funding risk and provides the flexibility to originate long-term loans.
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Elena Loutskina joined the Department of Financial Markets as a IWH Research Fellow in January 2021. Her areas of expertise are commercial banking, regulation of financial intermediaries, consumer and small business lending and financial integration. She is a Professor at the Darden Graduate School of Business Administration, University of Virginia since 2006. She holds the Peter M. Grant II Bicentennial Foundation Chair and is a Fellow of the Wharton Financial Institutions Center.
This paper shows that by reducing the cyclicality of deposit costs and internal funds (profits), deposit market power reduces banks’ funding risk 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. 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 increasing long-term credit supply, helps alleviate credit cycles.
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