Deposit Betas: Up, Up, and Away?

Alena Kang-Landsberg, Stephan Luck and Matthew Plosser

No 20230411, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: Deposits make up an $18 trillion market that is simultaneously the main source of bank funding and a critical tool for households’ financial management. In a prior post, we explored how deposit pricing was changing slowly in response to higher interest rates as of 2022:Q2, as measured by a “deposit beta” capturing the pass-through of the federal funds rate to deposit rates. In this post, we extend our analysis through 2022:Q4 and observe a continued rise in deposit betas to levels not seen since prior to the global financial crisis. In addition, we explore variation across deposit categories to better understand banks’ funding strategies as well as depositors’ investment opportunities. We show that while regular deposit funding declines, banks substitute towards more rate-sensitive forms of finance such as time deposits and other forms of borrowing such as funding from Federal Home Loan Banks (FHLBs).

Keywords: deposits; beta; banks; Interest rate (search for similar items in EconPapers)
JEL-codes: D14 E52 G2 (search for similar items in EconPapers)
Date: 2023-04-11
New Economics Papers: this item is included in nep-ban
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