Banking
Deposit beta
The share of a change in policy interest rates that a bank passes on to depositors.
Last reviewedWhat does Deposit beta mean?
Deposit beta measures how much a bank's deposit rates move when the central bank moves its policy rate. Deposit beta = change in the rate paid on deposits / change in the policy rate. Example: the central bank raises rates by 2 percentage points and the bank raises what it pays depositors by 0.6 points, so the deposit beta is 30 percent. A low beta widens net interest margin when rates rise. Betas usually start low and climb as customers notice and move their money, and they differ by product: term deposits have high betas, current accounts low ones.
Where does it come up in case interview prep?
Related terms
- Net interest margin (NIM)What a bank earns on its loans and investments after paying for its funding, as a share of those assets.
- CASA ratioThe share of deposits held in low-cost current and savings accounts.
- Percent versus percentage pointsA change in a rate is measured in points; its relative change in percent.
- Cost-to-income ratioOperating costs as a share of operating income. Lower means a more efficient bank.
- Cost of riskLoan loss charges as a share of loans, usually quoted in basis points.
- Non-performing loan (NPL) ratioThe share of a bank's loans that borrowers have stopped paying.
- CET1 capital ratio (and risk-weighted assets)A bank's highest-quality capital as a share of its risk-weighted assets.
- Liquidity coverage ratio (LCR)Whether a bank holds enough easy-to-sell assets to survive 30 days of stress.