We demonstrate the passthrough of Treasury supply to deposit funding through bank market power. We show that an increase in Treasury supply leads to a net deposit outflow. At the same time, reliance on wholesale funding decreases. The effect is heterogeneous|banks in more competitive markets experience stronger deposit out-flows. The explanatory power of Treasury supply is not driven by monetary policy and bank-specific investment opportunities. We rationalize our empirical findings with a model of imperfect deposit competition. Consistent with Drechsler, Savov and Schnabl (2017), the model and empirical evidence predict the opposite effect for monetary policy rate hikes: there is a larger response in less competitive markets.
Li, Wenhao, Yiming Ma, and Yang Zhao. "The Passthrough of Treasury Supply to Bank Deposits." Columbia Business School, April 24, 2020.
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