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Bank liabilities and the monetary transmission mechanism

Author

Listed:
  • Steven W. Sumner

    (Department of Economics, School of Business, University of San Diego)

  • Guy Yamashiro

    (California State University, Long Beach)

Abstract

Using two sources of data on commercial bank liabilities we examine the behavior of various components of deposits following a monetary tightening (downturn) as well as a nonmonetary downturn equal in magnitude to the monetary downturn in order to better understand the portfolio behavior of commercial banks. We find that the increase in total deposits during a monetary tightening (when output is low and interest rates are high) is attributable to an increase in small time deposits and that large time deposits and demand deposits exhibit a decrease. This suggests that banks are able to, at least partially, offset the potentially adverse effects of a monetary tightening on their balance sheet by borrowing and raising additional small time deposits. Further, non-monetary downturns, when both interest rates and output are low, seem to have little effect on the liability position of banks.

Suggested Citation

  • Steven W. Sumner & Guy Yamashiro, 2011. "Bank liabilities and the monetary transmission mechanism," Economics Bulletin, AccessEcon, vol. 31(2), pages 1413-1431.
    • Handle: RePEc:ebl:ecbull:eb-11-00029
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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