Deposit Beta
Deposit Beta · Funding Mix · Deposit Franchise · NIM Sensitivity
How quickly a bank passes market rate changes through to the interest paid to depositors — a key indicator of deposit franchise quality.
What it is
Deposit Beta: Measures what portion of a market interest rate change flows through into the bank's deposit costs.
Deposit beta = Change in deposit rate / Change in market rate (e.g. EURIBOR)
Example: EURIBOR rises by 100 bps, the bank raises deposit rates by 40 bps → deposit beta = 40%.
Low deposit beta = an advantage. The bank does not need to aggressively reprice deposits even as market rates rise → NIM expands.
Deposit Franchise: The quality and stability of the bank's depositor base. A strong deposit franchise = a large share of retail and commercial deposits, low customer rate sensitivity, low churn even at zero interest rates.
Funding Mix: The share of different funding sources:
Why track it
Deposit beta directly affects NIM — and NIM is the largest component of bank revenues. In the rising rate cycle (2022–2024), banks with a low deposit beta massively expanded NIM → earnings boom → stock rally.
When rates fall, the situation reverses — banks with a quality deposit franchise have an advantage, because even as EURIBOR/SOFR falls, their funding costs do not drop to zero immediately.
The share of CASA deposits is a strong indicator of franchise quality — a bank with 60%+ CASA has a structural NIM advantage over banks dependent on term or wholesale deposits.
Real-world example
Watch out for
A low deposit beta in a rising rate environment is a tailwind — but in a falling rate environment it becomes a headwind. A bank that did not "feed" depositors with high rates will have nowhere to cut from. NIM then gets compressed.
Monitor whether the low deposit beta is the result of a genuine deposit franchise, or a temporary environment where customers have not yet had time to switch to competitors (deposit repricing lag — depositors react with a delay).