Net Interest Margin & Deposit Beta
Where the money is made — and how fast deposit costs chase the Fed.
Net Interest Margin (NIM) = (interest income − interest expense) / average earning assets. It is the single most-watched profitability measure for a depository.
The deposit-cost problem
When the Fed raises rates, asset yields reprice — but so do funding costs. How fast deposit costs follow is captured by deposit beta:
Deposit beta = Δ(deposit rate) / Δ(market rate)
A beta of 0.40 means deposit costs rise 40bp for every 100bp of Fed hikes. Betas are low early in a hiking cycle and rise with a lag as competition and customer behavior catch up — which is why NIM often peaks and then compresses mid-cycle.
Levers on NIM
- Asset mix and duration (yield vs. rate risk).
- Funding mix — non-maturity deposits (low beta) vs. CDs and borrowings (high beta).
- The curve — see The Yield Curve.
How PhxIQ relates
The dashboard's policy rates (Fed funds, EFFR, SOFR) set the funding-cost backdrop; the curve sets reinvestment economics. The briefing connects each day's move to deposit-pricing and NIM pressure.