A recent BIS working paper explores how the rise of online banking and social media platforms is transforming how US banks set deposit rates and respond to monetary policy shifts. Authored by Michael Brei, Giulio Cornelli, Leonardo Gambacorta, and Boris Hofmann, the study draws on branch-level data to reveal significant differences between digitally oriented banks and traditional institutions with extensive physical networks.
Over the past decade, two parallel developments have altered depositor behavior.
Customers can now easily compare rates and switch accounts online, reducing switching costs.
Meanwhile, social media accelerates information sharing, heightening awareness of better opportunities. These forces increase the price sensitivity of deposits, particularly for banks operating primarily through digital channels.
Researchers classified banks using cluster analysis based on characteristics such as limited physical branches, higher spending on IT and advertising, lower investment in fixed assets, and distinct deposit pricing patterns.
This approach identified roughly 1,567 digital banks out of over 7,000 institutions. These entities tend to maintain fewer but larger branches and offer a narrower range of in-person services.
Key research findings on rate levels show that digital banks consistently provide higher interest rates than traditional counterparts, especially on savings accounts and smaller time deposits.
The gap is widest compared to larger traditional banks and becomes more pronounced in areas with elevated social media (X) usage.
In high-activity counties, digital banks appear to face intensified competition, prompting them to offer more attractive terms to retain or attract price-conscious customers.
The research study also examines monetary policy transmission.
Digital banks adjust deposit rates more quickly and fully to changes in the federal funds rate.
Pass-through is strongest for higher-yielding products like small time deposits.
Traditional banks exhibit greater rigidity, consistent with stronger local market power and customer loyalty tied to branch relationships.
Digital customers, being more accustomed to online tools and less personally attached, react faster to rate changes, compelling their banks to respond promptly to prevent outflows.
Asymmetry persists across the board: deposit rates adjust more readily during policy easing than tightening, reflecting banks’ reluctance to raise rates quickly.
However, this pattern is often less marked for digital banks, particularly in competitive segments.
Local projection methods confirm faster cumulative adjustments at digital institutions, with near-complete pass-through over longer horizons in some cases.
Social media amplifies these dynamics. Within the same bank, branches in counties with higher X activity see sharper rate responses to policy shifts among digital banks—but not traditional ones.
This suggests online discourse makes rate differences more salient, boosting depositor search activity and competition.
The authors merged multiple sources, including S&P RateWatch for branch rates, FDIC deposit data, Call Reports for bank finances, and geotagged Twitter metrics (2016–2019).
Their top-down empirical strategy—from aggregate trends to within-bank comparisons with fixed effects—isolates the roles of digitalization and social media while controlling for local conditions.
Implications are now seemingly significant for monetary policy effectiveness and banking competition.
As digital adoption grows in 2026, transmission to deposit rates may strengthen overall, potentially influencing lending and economic activity. The BIS update has now concluded that traditional banks may face pressure to enhance digital offerings or compete more aggressively on rates.