US banks whose net interest margins declined during the Federal Reserve’s tightening cycle are more reliant on capital market funding, a research paper finds.

“Although most studies on this rate hike cycle have focused on deposit funding costs, we find that non-deposit funding is the critical determinant of differences between increasing and decreasing margins,” write Brendan Laliberte and Rajdeep Sengupta. 

Their paper, published by the Federal Reserve Bank of Kansas City, finds that these