We show theoretically how the anticipated cross-selling of loans incentivizes banks to offer lower deposit spreads to attract and retain depositors, more when policy rates are lower and future cross-selling is more valuable. Utilizing comprehensive data on every Norwegian bank household relationship, we then establish empirically how banks facing identical loan demand respond to policy rate cuts with greater deposit spread reductions for clients with higher cross-selling potential, thereby raising both deposit and loan growth. Cross-selling constitutes a complementary, novel channel for monetary policy transmission through banks, elucidates loss-making deposit pricing in low-rate periods, and connects banks’ deposit and loan franchises.
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