The European Central Bank has published a working paper examining euro area bank deposit pricing over 2007 to 2024 and concluding that the weak pass-through of policy rate increases to sight deposit rates is driven mainly by changes in the depositor base rather than by bank-specific factors. The paper finds that pass-through to household sight deposits was low and declined over time, with the long-run deposit beta estimated at 0.247 and the hiking-cycle beta falling from about 0.3 in 2007 to 2008 to about 0.1 in 2022 to 2024. It also finds that pass-through was asymmetric, with deposit rates responding more when policy rates fell than when they rose. Using an equilibrium model of deposit markets, the paper finds that higher-income households and higher-revenue firms were more rate-sensitive and increasingly moved into higher-yielding products such as term deposits and outside options as rates rose in 2022 to 2024. That left a less rate-sensitive pool in overnight deposits and increased banks' market power over those balances, helping explain the sluggish rise in overnight deposit rates after the ECB's policy tightening. Counterfactual analysis suggests that removing depositor heterogeneity would have raised household overnight deposit rates by an average of 31 basis points over the sample and by 45 basis points in 2024, and would have roughly doubled the 2022 to 2024 deposit beta, while removing bank heterogeneity had little effect on equilibrium rates. The paper says these findings matter for monetary policy transmission, competition policy and financial stability. It argues that pass-through depends not only on the level of policy rates but also on their recent history, while measures focused only on market structure may have limited impact compared with steps that affect depositor awareness and switching behaviour.

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