RWP 25-02, April 2025
We provide empirical evidence on banks' market power in financial services and its implications for monetary policy transmission through deposit rates. Banks with market power in financial services charge higher fees for their service and also offer lower deposit rates with less pass-through from monetary policy. We argue that this is the result of product tying: consumers must open a deposit account to access a bank's financial services. We develop and calibrate a quantitative model of the U.S. banking industry where banks generate non-interest income from services in addition to a standard loan-deposit model. Counterfactuals emphasize the importance of non-interest income for credit supply, financial stability, and deposit pricing.
JEL Classifications: D43, E44, E52, G21, G51
Article Citation
Gödl-Hanisch, Isabel, and Jordan Pandolfo. 2025. "Monetary Policy Transmission, Bank Market Power, and Income Source." Federal Reserve Bank of Kansas City, Research Working Paper no. 25-02, April. Available at External Linkhttp://doi.org/10.18651/RWP2025-02