Monetary Policy and Bank Funding Costs: Patterns and Predictability in the Transmission of the Policy Rate to U.S. Banks’ Funding Costs

Daniel Dias and Sophia Scott

No 2025-083, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: This paper shows that U.S. commercial banks' funding betas rise predictably with the length, magnitude, and direction of each monetary policy cycle: longer cycles and those with larger changes in the policy rate yield stronger pass-through in both tightening and loosening cycles, with modest asymmetry favoring slightly greater transmission during loosening cycles. Nondeposit liabilities consistently adjust more than deposits. Crucially, at the aggregate banking-system level and across banks grouped by size, this cycle-dependent relationship has remained remarkably stable over three decades, highlighting the durability and predictability of interest-rate transmission to banks' funding costs.

Keywords: Bank funding betas; Deposit vs. nondeposit funding costs; Monetary policy cycles; Interest-rate transmission (search for similar items in EconPapers)
JEL-codes: C22 E44 G21 (search for similar items in EconPapers)
Pages: 29 p.
Date: 2025-09-19
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2025-83

DOI: 10.17016/FEDS.2025.083

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