Description
Abstract: I examine how the interaction between deposit market concentration and banks’ reliance on wholesale funding shapes the transmission of monetary policy shocks to mortgage rates. Using U.S. bank-level data from 2000–2019, I show that wholesale funding reliance amplifies policy pass-through in competitive markets but dampens it in concentrated markets. When policy rates rise, banks in concentrated markets substitute toward wholesale funding rather than raising deposit rates, weakening transmission to borrowers. A 100 basis points policy increase leads to 34 basis points pass-through in competitive markets but near-zero in concentrated markets—a differential worth $67 per month on a $300,000 mortgage. This dampening effect exhibits sharp nonlinearities: At the zero lower bound, competitive markets show strong positive pass-through, while concentrated markets exhibit negative pass-through. These findings demonstrate that monetary policy effectiveness depends critically on local banking market structure and funding composition.