Shohini Kundu, University of California-Los Angeles
Tyler Muir, University of California-Los Angeles
Jinyuan Zhang, University of California-Los Angeles
Abstract: We document the emergence of two distinct types of banks over the past decade: high rate banks which provide deposit rates in line with market interest rates, and low rate banks whose deposits are now even less sensitive to market rates. While the aggregate sensitivity of deposit rates to market interest rates has remained similar, the distribution in deposit rates among large banks is now bimodal. High rate banks operate primarily online with very few physical branches, hold short maturity assets, and earn a lending spread by taking credit risk. In contrast, low rate banks operate far more physical branches, offer deposit rates that are even less sensitive to interest rates than before, and they primarily engage in maturity transformation in that they hold longer duration interest rate sensitive assets, but take less credit risk. Deposits shift substantially towards high rate banks when interest rates rise and reduce the ability of the banking sector to engage in maturity transformation. Tracking aggregate deposit flows from the banking sector thus misses a substantial amount of flows within the banking sector. We argue that the distribution of deposits across high and low rate banks is important to understand the transmission of monetary policy, beyond tracking aggregate deposits in the banking sector. Our evidence is consistent with technological changes in banking that lead to the emergence of high rate banks. In response, traditional banks lower rates through the retention of "stickier" depositors.
Abstract: The literature on the shift from banks to nonbanks in the mortgage market has largely overlooked the seismic effects of the rise of nonbank issuers in the Ginnie Mae mortgage-backed security market. These issuers are the gateway to long-term funding for mortgages originated to lower credit-score borrowers. Our causal identification strategy exploits plausibly exogenous variation across counties in the marketshare of two large bank issuers that exited the market. We show that nonbank issuers replaced about 60% of the market share of the exiting banks, and that this market shift resulted in a general-equilibrium increase in both access to credit and the cost of credit. Our results indicate that nonbank issuers may play a larger role than nonbank originators in credit standards.
Discussant: Brittany Lewis, Washington University-St. Louis
Abstract: Exploiting increases in US defense spending following the 9/11 attacks, we show that the procurement-driven fiscal stimulus led to lower non-performing loans at banks. In turn, constrained banks responded by increasing lending to small businesses in not-directly-impacted counties. We find the additional economic activity enabled by the increased lending capacity is quantitatively important – amplification from this ‘credit multiplier’ is about 10%-15% as large as typical fiscal multipliers estimated in the literature. Since intermediaries are more likely to face constraints in times when a fiscal stimulus is needed, this ’credit multiplier’ can substantially amplify a stimulus’ overall impact in downturns.
Discussant: Stefan Lewellen, Pennsylvania State University
