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Do banks’ funding costs respond symmetrically to policy rate increases and decreases?

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  • Dias, Daniel A.
  • Scott, Sophia C.

Abstract

Using data on U.S. banks’ funding costs, we study how policy rate changes pass through to deposit, non-deposit, and total funding costs when rates rise and when they fall. We find largely similar adjustments across tightening and easing phases: initial differences in the response of deposit and total funding costs are small and short-lived, and longer-horizon changes are statistically similar. Robustness checks with alternative sample start dates point to the same symmetric behavior in larger, more recent samples. Taken together, the results suggest that the familiar “rockets and feathers” asymmetry documented for advertised deposit rates does not extend to realized funding costs.

Suggested Citation

  • Dias, Daniel A. & Scott, Sophia C., 2026. "Do banks’ funding costs respond symmetrically to policy rate increases and decreases?," Economics Letters, Elsevier, vol. 259(C).
    • Handle: RePEc:eee:ecolet:v:259:y:2026:i:c:s0165176525006196
    DOI: 10.1016/j.econlet.2025.112782
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    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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