Unconventional monetary policy made retaining deposits costlier and riskier for banks after policy returned to normal, authors Philip Strahan and Tuo Yang said in a National Bureau of Economic Research working paper.
Their paper, “Unconventional Monetary Policy and Deposit Retention,” carries a November 2026 issue date, with no specific publication day supplied. The authors found that the policies attracted customers more sensitive to interest rates, changing the mix of bank depositors. The change in that mix left banks with customers whose deposits were more sensitive to rates.
The research examined two policies: keeping short-term interest rates at their effective floor of zero and quantitative easing, or central bank purchases of bonds. These were the two forms of unconventional monetary policy examined in the paper. The supplied abstract does not identify the study period, dataset or size of the effects.
The authors said both policies drew more interest-sensitive customers into bank deposits, but through different channels. Near-zero short-term rates narrowed differences between available rates, reducing the benefit of searching for places to hold cash that paid more interest. With those rate differences compressed, customers had less to gain from searching for a higher rate on their cash.
Quantitative easing also attracted large depositors sensitive to interest rates, the authors said. They linked that change to the Federal Reserve’s purchases of bonds from sellers outside the banking system. In this channel, the purchases from those sellers were linked to the change in the composition of bank deposits.
After monetary policy returned to normal, banks’ exposure to both policies was associated with greater sensitivity of deposit flows to interest rates, the authors found. Deposit beta, the extent to which deposit rates change when policy rates move, also increased with exposure to the policies. Both the sensitivity of deposit flows and the responsiveness of deposit rates increased with that exposure after policy returned to normal.
The authors concluded that the policies changed the customers banks had to retain, leaving banks with higher costs and risks in keeping their deposits. Their conclusion concerned the cost and risk of retaining the deposits of the changed customer mix. The supplied abstract gives no numerical estimates for those costs or risks.
Strahan and Yang take responsibility for the paper’s content. Its findings represent their views and do not necessarily reflect those of the National Bureau of Economic Research.
