Conference Agenda

In this paper, we establish that universal banks reduce the efficacy of the monetary policy pass-through to the economy. Universal banks have access to a variety of funding sources, beyond retail deposits, which enable them to maintain a higher credit supply when the monetary policy tightens. We show that this has positive real effects on the economy as the higher credit supply by universal banks leads to lower unemployment rates in areas where they lend more. This channel is distinct from existing theories of monetary policy transmission, and we validate that the findings hold beyond a variety of alternative explanations. The results shed new light on the Fed’s execution of monetary policy, as well as how it should regulate the banking system.