Abstract

This paper shows that interest rates on deposits issued in the foreign offices of US banks (“foreign deposits”) are more sensitive to US monetary policy than rates on domestically issued deposits. Estimated deposit betas are roughly 20 percentage points larger for foreign deposits, a gap that persists across dollar-denominated accounts, under Fed rate hikes and cuts, and after controlling for other drivers of deposit betas. The uninsured status of foreign deposits explains only part of the difference. At the consolidated level, US banks with high foreign deposit shares will have more interest-sensitive liabilities, but they also hold more interest-sensitive assets. Despite this, these banks exhibit stronger stock price reactions to US monetary policy, suggesting that foreign deposits raise their net exposure to interest rate risk.