Can recent developments in banking explain weak interest rate pass-through during the financial crisis?

The nancial crisis resulted in drastic consequences for the functioning of the monetary trans- mission mechanism. This thesis makes an attempt at uncovering why interest rate pass-through has been weak during the nancial crisis. First, by estimating an error-correction model, I nd that the pass-through from funding rates to retail rates has indeed deteriorated since the onset of the nancial crisis. This thesis then proceeds to show that banks with higher regulatory capital ratios tend to have higher pass-through estimates. In addition, there is weak evidence that when non-performing loans are numerous, pass-through is lower. Furthermore, no signicant eect of the funding gap on pass-through could be reported. Finally, erce competition among banks leads to higher pass-through, in line with previous literature. The results lead me to the policy rec- ommendation that banks should be recapitalized; Stronger regulatory capital ratios are expected to improve pass-through, thereby contributing to the restoration of the monetary transmission mechanism.