We investigate the supply and demand drivers of bank deposit pricing in the Euro area during the period 2007—2024. We document that the pass-through of policy rates to sight deposit rates is low, asymmetric, varies across the monetary policy regimes, and decreases over time. %The magnitude of the deposit rate pass-through is shaped by market structure and bank characteristics.
We build and estimate an equilibrium model of bank deposit markets, and find that the price sensitivity of depositors displays large heterogeneity between households and firms, across countries, and over time. Our estimates suggest that rate-sensitive depositors increasingly switched to alternative, higher-yielding savings products over time, thereby decreasing the average rate-sensitivity of the remaining pool of sight deposits. In turn, banks’ market power in overnight deposits increased, thereby accounting for the sluggish increase in overnight deposit rates following the 2022 European Central Bank’s hike in policy rates.