Finance and Economics Discussion Series (FEDS)
September 2025
Monetary Policy and Bank Funding Costs: Patterns and Predictability in the Transmission of the Policy Rate to U.S. Banks' Funding Costs
Daniel A. Dias; Sophia C. Scott
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
DOI: https://doi.org/10.17016/FEDS.2025.083
PDF: Full Paper
Related Materials: Accessible materials (.zip)
Disclaimer: The economic research that is linked from this page represents the views of the authors and does not indicate concurrence either by other members of the Board's staff or by the Board of Governors. The economic research and their conclusions are often preliminary and are circulated to stimulate discussion and critical comment. The Board values having a staff that conducts research on a wide range of economic topics and that explores a diverse array of perspectives on those topics. The resulting conversations in academia, the economic policy community, and the broader public are important to sharpening our collective thinking.