Interest Rate Pass-through by U.S. Banks: Macro Implications of Bank Competition

September 29, 2025
Nobuhiro Abe^*1
Yuto Ishikuro^*2
Koki Nakayama^*3
Yutaro Takano^*4

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Abstract

Do heterogeneity and competition among banks matter for the macroeconomy? To address this question, we develop a Heterogeneous Bank New Keynesian (HBANK) model that incorporates oligopolistic competition among banks in both loan and deposit markets into an otherwise canonical New Keynesian model. We calibrate model parameters for the cost structure and demand for loans and deposits using data of the 170 largest banks in the U.S. Differences in the parameter values reflect differences among banks in the size of duration risk they take, markups of loan rates, and markdowns of deposit rates. Based on simulation exercises, we show that aggregate lending becomes more responsive to monetary and productivity shocks in our HBANK model than in a Representative Bank New Keynesian model (RBANK), primarily because of heterogeneity in duration risk and the responsiveness of loan markups among banks.

JEL classification

E32, E43, E44, E52, G21

Keywords

banking, business cycles

1. *1Financial System and Bank Examination Department, Bank of Japan (Currently in the Monetary Affairs Department)
   E-mail : nobuhiro.abe@boj.or.jp
2. *2Financial System and Bank Examination Department, Bank of Japan (Currently in the Personnel and Corporate Affairs Department)
   E-mail : yuuto.ishikuro@boj.or.jp
3. *3Financial System and Bank Examination Department, Bank of Japan (Currently in the Research and Statistics Department)
   E-mail : kouki.nakayama@boj.or.jp
4. *4Financial System and Bank Examination Department, Bank of Japan (Currently in the Personnel and Corporate Affairs Department)
   E-mail : yuutarou.takano@boj.or.jp

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