CEDE Seminar - Giselle Labrador-Badia

This paper quantifies how segmentation and bank market power in deposit markets shape the transmis sion of monetary policy. Using rate data differentiated by deposit account size, I document that uninsured rates are higher than insured rates, significant heterogeneity in banks’ uninsured deposit exposure, and in complete pass-through from policy rates to deposit rates. I develop and estimate a structural model of bank competition with segmented deposit markets by insurance status and spatial competition to understand these patterns and quantify their implications for monetary transmission. I find that uninsured deposits are slightly more elastic than insured deposits, while insured deposits have higher servicing costs. In counterfactual simulations of federal funds rate increases, I find that insured deposit outflows are three times larger than unin sured outflows and pass-through is higher for uninsured rates. Banks substitute toward wholesale funding, contracting lending as monetary policy tightens. Small banks experience larger balance sheet contractions following rate increases, while competitive markets exhibit stronger deposit pass-through. These findings demonstrate that accounting for deposit segmentation is essential for understanding monetary transmission: segmentation amplifies policy effects in competitive markets but dampens transmission in concentrated mar kets.