Even as rates increased over the last 18 months, deposit costs have only moved modestly higher but funding pressures could emerge as the pace of short-term rate hikes picks up.
Eye on deposit betas
Deposit costs inched higher in 2016 in the aftermath of the Fed’s first rate hike in nearly a decade. In 2016, the deposit beta—or how much of the change in rate banks passed on to customers—experienced by the industry was just 12%, well below the 41% and 62% levels sustained in 2005 and 2006, respectively, during the last tightening cycle.
