Bank Market Power and Transmission of Monetary Policy

Abstract

This paper estimates bank market power in the Russian banking sector with credit and deposit markups and explores their relationship with bank size and market concentration. It then investigates how markups are related to banks’ responses to monetary policy within a heterogeneous banking environment. The results suggest that higher credit markups are associated with a faster increase and a slower decrease in credit conditions when the key rate changes. In contrast, higher deposit markups correspond to a slower rise and faster decline in deposit conditions. Furthermore, banks with high deposit markups tend to maintain larger deposit volumes and exhibit stronger responses to monetary policy changes, particularly more pronounced deposit growth during periods of monetary easing in the sample period (2017–2021).