DNB study reveals uneven deposit rate pass-through
A new working paper from De Nederlandsche Bank investigates how market rates transmit to bank deposit rates in the euro area. The study finds pass-through is significant but uneven, influenced by deposit type, interest rate regimes, and bank characteristics.
Deposit rates respond unevenly to market shifts
A new DNB working paper by Jan Kakes and Anna Samarina investigates the pass-through of market rates to bank deposit rates across the euro area, utilizing bank-level data from July 2007 to March 2025.
The study reveals that while pass-through is significant, it is notably uneven.
Term and corporate deposits exhibit a stronger pass-through compared to demand and household deposits.
Furthermore, the effectiveness of this transmission diminishes significantly in low-interest-rate environments, primarily due to the zero lower bound, and shows considerable variation across different euro area countries.
Structural features of the banking sector also play a crucial role, with banks in more concentrated markets demonstrating lower pass-through.
Banks with larger liquidity buffers, stronger capitalization, and greater reliance on deposit funding tend to adjust their deposit rates less.
Conversely, higher customer switching frequency and increased payment account fees are associated with a stronger pass-through for household demand deposits, suggesting that competition and cost recovery mechanisms influence rate adjustments.
Beyond short-term benchmarks
The research addresses several previously underexplored aspects of deposit rate rigidity.
It highlights the importance of using longer-maturity market rates, such as the two-year swap rate, as benchmarks for assessing pass-through, aligning with banks' own duration matching considerations.
The paper also accounts for country-specific government regulations and practical limitations like the zero lower bound, which can constrain banks' discretion in setting rates.
The study acknowledges non-interest features of bank deposits, such as payment services and deposit guarantees, which can grant banks market power.
The authors employ two complementary methodologies—local projections and an error-correction model—to analyze the pass-through dynamics across various dimensions.
Sticky rates, real consequences
The findings underscore persistent challenges for monetary policy transmission, especially in low-rate environments, and highlight the need for supervisory attention to market structure.
This comprehensive study provides robust empirical evidence for policymakers to consider when evaluating competition and consumer welfare.
It offers a critical lens for understanding financial stability risks and central bank tool effectiveness.