Why Central Banks Are Watching Bank Funding Costs

Monetary Policy Explained with Fexingo: Central Banks, Money Supply, and Interest Rates · Jul 18, 2026 · 8m · transcript

Lucas and Luna explore why central banks are increasingly focused on bank funding costs as a leading indicator of financial stability and monetary policy transmission. Using the 2023 regional banking turmoil as a reference point, they examine how the spread between bank deposit rates and risk-free rates has narrowed, squeezing net interest margins and signaling potential credit tightening. The hosts discuss how the Federal Reserve now monitors the Bank Funding Cost Index from the Office of Financial Research, and how the European Central Bank tracks the pass-through of rate hikes to bank…