Linking ECB Policy to Bank and Corporate Decision-Making : Evidence from DFR Transmission to Euribor

This quantitative study examining the transmission of the European Central Bank’s (ECB) Deposit Facility Rate (DFR) to Euribor across different maturities (1W, 1M, 3M, 6M, 12M) with particular focus on how market expectations, liquidity risk, and credit risk moderate this relationship. Using daily data from 2008 to 2025, this study estimates baseline and extended regression models. The extended model introduces market expectations (OIS rate), liquidity risk (Euribor–EONIA/€STR spread), and credit risk (Euribor–OIS spread) as moderating variables which significantly reshape the effectiveness of policy rate transmission, with effects varying by maturity. Results show that DFR pass-through is strongest for the 1-week Euribor, with limited direct effects on longer maturities. From a managerial perspective, the findings have direct implications for bank treasury operations, particularly in Funds Transfer Pricing (FTP) and ALM strategy. Short-term FTP curves should be adjusted rapidly in response to DFR changes, while longer maturities require adjustments based on prevailing market risk conditions. For corporates with Euribor-linked debt, heightened market expectations or liquidity stress necessitate proactive hedging and refinancing strategies to manage borrowing cost volatility. This thesis contributes to the literature by bridging macro-level monetary policy analysis with micro-level financial decision-making. It highlights that policy effectiveness depends not only on central bank actions but also on market risk dynamics, which determine how quickly and fully benchmark rates adjust. The results provide actionable insights for policymakers, bank managers, and corporate treasurers seeking to navigate interest rate risk in an evolving monetary environment. Keywords: Monetary policy transmission, Deposit Facility Rate, Euribor, ECB, Credit Risk, Liquidity Risk, Market Expectations, Funds Transfer Pricing, asset-liability management, corporate finance.