The impact of the COVID-19 pandemic on bank funding costs

Abstract

This study examines how the COVID-19 pandemic influences bank funding costs using a sample of around 5300 US listed banks from 2018:Q3 to 2021:Q2. We consistently find that the COVID-19 pandemic significantly reduces bank funding costs. Digging deeper into bank funding structure, our findings show that the decline in bank funding costs is mainly driven by the increase in the supply of retail deposits rather than wholesale deposits. We also find that large banks with higher asset quality benefit more from the pandemic than small and medium-size banks in terms of cheaper funding costs during the pandemic.