I investigate how monetary policy transmits to mortgage rates via the mortgage market concentration channel for both traditional and shadow banks in the US from 2009 to 2019. On average, shadow and traditional banks exhibit only a slight disparity in transmitting monetary shocks to mortgage rates. Nonetheless, in highly concentrated mortgage markets, shadow banks transmit marginally 35 bps more, whereas traditional banks transmit marginally 25 bps less in response to a +100 bps monetary policy surprise. Lastly, banks are serving different parts of the mortgage rate distribution: (i) FinTech lenders compete with traditional banks for the highest rates, (ii) traditional banks primarily target the middle of the mortgage rate distribution, and (iii) non-FinTech lenders specialize in the lowest rates by transmitting monetary policy the least.

I study the impact of banking market concentration and wholesale funding reliance on the transmission of monetary policy shocks to mortgage rates. I analyze this imperfect transmission through the lens of a New Keynesian model with monopolistically competitive banks and costly access to wholesale funding. I find that high market power banks with greater reliance on wholesale funding transmit monetary policy less to deposit rates, generating lower liability. This leads to lower mortgage lending, house prices, and borrower consumption. If monetary policy shocks become persistent, this negative effect amplifies as banks increasingly pivot from deposits to wholesale funding.