I study the impact of deposit market concentration and wholesale funding reliance on the transmission of monetary policy shocks to mortgage rates. I empirically find that, in the United States, banks with greater reliance on wholesale funding transmit monetary policy more to mortgage rates. However, banks with greater reliance on wholesale funding in concentrated deposit markets transmit monetary policy less to mortgage rates because banks borrow wholesale funding rather than increase their deposit rates. I then build a partial equilibrium banking model with monopolistically competitive banks with a quasi-kinked mortgage demand curve and costly access to wholesale funding. The model replicates asymmetric and imperfect pass-through to mortgage rates where banks with greater reliance on wholesale funding in concentrated deposit markets transmit monetary policy shocks less to mortgage rates. Lastly, monetary policy transmission to mortgage rates is amplified when banks' wholesale funding reliance in concentrated deposit markets is limited by tighter liquidity requirements.

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.