Euro area banks have, to some extent, passed on increases in policy rates to the benefit of both non-financial corporations and households. Interest rates on “new” term deposits for both non-financial corporations and households have risen since the start of the monetary policy tightening cycle, while overnight deposit rates have remained relatively sticky. Confidence intervals are at the 95% level. The 5th, 25th, 50th, 75th and 95th percentiles correspond to a ratio of liquid assets equal to 3%, 8%, 15%, 27% and 48% respectively.

The main variable of interest is the interaction between the policy rate and the ratio of liquid assets to total assets. The endogenous variable is the weighted average of new business term deposit rates for both non-financial corporations and households. Panel c: the sample, the control variables and the fixed effects are the same as in panel b. Confidence interval are at the 95% level. Robust standard errors are clustered at the bank level. Control variables are all lagged by one period.

Control variables include the lag of the endogenous variable, the logarithm of total assets, the return on assets, the ratio of deposits to total assets, the non-performing loans ratio, the liquid-assets-to-total assets ratio, the equity-to-total-assets ratio, the cost/income ratio, the change in the spread between the ten-year government bond yield and the German ten-year sovereign yield, GDP growth and the Herfindahl-Hirschman index. The variable of interest is the policy rate. The endogenous variables are the overnight and term deposit rates on new business from households and non-financial corporations. Panel b: regressions are estimated through OLS panel fixed effect models based on a sample of 83 euro area banks and yearly data over the period from 2007 to 2021.

Notes: Panel a: deposit rates refer to new business volumes and are calculated as the weighted average for non-financial corporations and households. Term deposit rates exhibit greater sensitivity than overnight deposit rates to policy rates, with some bank-specific characteristics also playing a role

Banking term deposit rates