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The nexus between the deposit and risk-taking channels of monetary policy

Author

Listed:
  • José E. Gutiérrez

    (BANCO DE ESPAÑA)

  • Enric Martorell

    (BANCO DE ESPAÑA)

  • Mariya Melnychuk

    (BANCO DE ESPAÑA)

Abstract

This paper examines the deposit channel of monetary policy during the fastest and most intense tightening cycle of the euro era. Using the Banco de España’s Central Credit Register and regional variation in deposit market concentration, we show that the limited pass-through of policy rates to deposit rates produces heterogeneous effects on bank credit supply and risk-taking. Following the tightening cycle, banks operating in more concentrated deposit markets reduced credit more sharply to riskier firms. For newly originated loans, this contraction was accompanied by higher interest rates and improved realized returns. We document a novel dimension of the deposit channel: it compels banks to actively optimize their risk-return trade-off. Our results show that preserving deposit franchise value leads banks to prioritize prudence, reversing the “search-for-yield” dynamic observed during the zero-lower-bound era.

Suggested Citation

  • José E. Gutiérrez & Enric Martorell & Mariya Melnychuk, 2026. "The nexus between the deposit and risk-taking channels of monetary policy," Working Papers 2615, Banco de España.
  • Handle: RePEc:bde:wpaper:2615
    DOI: https://doi.org/10.53479/43145
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    References listed on IDEAS

    as
    1. Gabriel Jiménez & Steven Ongena & José‐Luis Peydró & Jesús Saurina, 2014. "Hazardous Times for Monetary Policy: What Do Twenty‐Three Million Bank Loans Say About the Effects of Monetary Policy on Credit Risk‐Taking?," Econometrica, Econometric Society, vol. 82(2), pages 463-505, March.
    2. Allen, Franklin & Gale, Douglas, 2004. "Competition and Financial Stability," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(3), pages 453-480, June.
    3. Kevin C. Murdock & Thomas F. Hellmann & Joseph E. Stiglitz, 2000. "Liberalization, Moral Hazard in Banking, and Prudential Regulation: Are Capital Requirements Enough?," American Economic Review, American Economic Association, vol. 90(1), pages 147-165, March.
    4. Jiménez, Gabriel & Lopez, Jose A. & Saurina, Jesús, 2013. "How does competition affect bank risk-taking?," Journal of Financial Stability, Elsevier, vol. 9(2), pages 185-195.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

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    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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