Online-only banks are making the whole economy way more twitchy when interest rates change. It's like we're all driving on a much bumpier road.
March 27, 2026
Original Paper
Digital banking and the evolving monetary policy transmission
SSRN · 6471701
The Takeaway
Traditional banks are slow to change rates because they have physical costs and 'sticky' customers. Because digital banks operate with zero friction and tech-savvy users, they pass rate changes to the public instantly, making central bank policies hit the economy much faster and more violently than in the past.
From the abstract
This paper maps the euro-area digital-banking segment and assesses how digital banks transmit monetary policy relative to brick-and-mortar peers. I compile a hand-checked universe of over 170 digital banks (2016–2025) from supervisory data, classifying institutions by business model (e-retail, e-service, e-wholesale). Digital banks are small on average yet growing fast, rely more on household deposits—predominantly overnight—and hold larger cash buffers and intangibles than traditional banks. Us