No. 1533 - Deposit funding, market power and monetary policy transmission
The paper assesses whether the transmission to bank interest rates of the ECB's monetary tightening in 2022-23 was consistent with historical regularities, and to what extent banks' market power and the share of deposits in their balance sheets affected the strength of this transmission.
The empirical findings show that policy rate increases were passed through to overnight deposit rates in the euro area less than is implied by historical regularities. Greater bank market power and a higher share of deposits on their balance sheets tend to dampen the transmission of monetary policy to funding costs. The effect associated with deposit funding is temporary, while that stemming from market power is more persistent and also affects lending rates to non-financial corporations and households.
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23 April 2026
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