Deposit Beta Across Monetary Cycles: Evidence from U.S. Banking Dynamics

Temitope Babalola, Saheed Babatunde Abdulahi and J. D Jayaraman

International Journal of Economics and Finance, 2026, vol. 18, issue 7, 45

Abstract: This study examines the dynamics of deposit beta in the U.S. banking sector across multiple monetary policy cycles from 2009 to 2024. Deposit beta which is denoted as the sensitivity of deposit rates to benchmark interest rates, plays an essential role in bank funding strategy, asset and liability management (ALM), and interest rate risk transmission. The study evaluates both short-run and long-run determinants of deposit pricing behavior while accounting for asymmetric responses to tightening and easing cycles. By using a time-series framework combining rolling regressions and autoregressive distributed lag (ARDL) modeling. The findings indicate that deposit beta is primarily driven by monetary policy variables, particularly the federal funds rate, SOFR, and long-term Treasury yields, rather than by internal liquidity measures or deposit volumes. Evidence of asymmetric pass-through shows stronger responsiveness during tightening cycles and muted adjustment during easing periods. Empirically, these results underscore the importance of interest rate environments in shaping bank funding behavior and highlight nonlinearities relevant to risk management and regulatory oversight. This study contributes to contemporary empirical insight into deposit pricing dynamics and offers practical implications for banking strategy and financial stability assessment.

Date: 2026
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