Monetary Policy and Bank Funding Costs: Patterns and Predictability in the Transmission of the Policy Rate to U.S. Banks' Funding Costs

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.