Public U.S. companies entered the 2022 rise in interest rates with unusually large cash balances, but that history does not show a lower borrowing rate for a household or a private small business. In an August 22, 2025 FEDS Note, Elie Singer and Jie Yang report that the median cash-to-assets ratio of public nonfinancial firms, near 12 percent in the years after the Great Financial Crisis, reached a historic high of more than 20 percent in mid-2021. The average ratio surpassed 30 percent in 2021. They suggest that firms typically more vulnerable to higher interest rates had built significant cash buffers immediately before rate hikes began in 2022. The supplied text supports the timing and the uneven buildup. It does not measure a later interest payment.
The cash ratio is not a loan rate
Cash-to-assets is cash divided by total assets. Figure 1 plots it for U.S. public, nonfinancial, non-utility firms with positive total assets, using S&P Compustat North America. The median is the midpoint firm, and the average is the separate series in the same figure. Both series jumped during the pandemic, and the shaded NBER recession for this episode runs only from February 2020 to April 2020. The high readings in 2021 are therefore not the same thing as the short recession itself. They are also not interest rates.
A larger cash share can still change a firm’s choice when borrowing costs rise. Paying a bill from cash avoids a new loan at a worse rate. The note’s account of earlier research says the firms that typically hold more cash are often those with greater difficulty raising external funds, and those firms may be more sensitive to higher rates. Singer and Yang’s contribution is the observation that this group had accumulated cash just before the 2022 hikes. The fetched pages do not show subsequent interest expense or prove that the cash was used instead of borrowing.
2020 and 2021 were different reasons to hold cash
The authors split the pandemic from the manager’s perspective. Early pandemic is 2020Q1 through 2020Q4, marked by high uncertainty about duration and macroeconomic consequences. Late pandemic is 2021Q1 through 2021Q4, when many pandemic pressures eased and uncertainty was somewhat lower.
In the early window, both more constrained and less constrained firms accelerated cash holdings amid uncertainty and fears of recession. In the later window, the majority of more constrained firms, possibly slow to adjust to an improving macroeconomic landscape, ended with substantially higher cash. Keeping earnings in cash also has an opportunity cost: the money is not invested and is not distributed as dividends or share repurchases. None of those descriptions is itself a change in the rate a bank charges.
Constraint raised saving, except where cash had to be spent
A financially constrained firm, in this note, has restricted access to external funding at fair market borrowing costs. Precautionary-savings research says that, in ordinary times, such firms should hold more liquid assets than unconstrained firms because the next loan may be unavailable or expensive. Stress can reverse the outcome. Constrained firms are more exposed to downturns, are often first to lose access to funding, and can suffer larger revenue drops. The note calls the resulting pressure immediate liquidity needs.
For the broad sample, precautionary saving dominated. More constrained firms accumulated cash faster and held it longer than less constrained firms, and that extra pandemic saving was larger than in any other period in recent history. Inside the industries most hurt by the pandemic, the opposite occurred. More constrained firms there accumulated cash more slowly than less constrained peers, presumably because immediate needs reduced saving. The three conclusions follow: both groups saved faster early; many constrained firms still held much more cash later; and the most constrained firms in hard-hit industries could not match the broader buildup.
That non-linearity is the practical point for borrowing costs. Extra cash can substitute for a loan only if it is still on the balance sheet. Firms that spent the cash to survive the shock meet higher rates with less of a buffer, not more. A median above 20 percent, or an average above 30 percent, does not identify which firm is which.
Households and small firms are outside the measurement
The note says the work contributes to research on how pandemic uncertainty led businesses and households to accumulate cash. The sentence points to a wider literature. This study’s data are quarterly Compustat accounts for public corporations. The fetched text ends in the middle of the sample description and states no household balance, credit-card rate, or mortgage rate.
The mechanism can still be explained without stretching the sample. For a household, cash reduces the need to borrow at a high new rate. It does not reset a fixed contract already signed, and it does not compel the next lender to offer less. For a private business, the hard-hit result is the more relevant caution. A savings target protects against costly credit only when revenue is sufficient to fund it. Public medians do not establish that private firms held the same ratios or paid less interest after 2022.
As of October 23, 2026, the case remains historical. The ratios belong to 2020 and 2021; the interpretation was published on August 22, 2025. Using either date as a live quote for this month’s borrowing costs would go beyond the source.
What would connect the buffer to an actual borrowing result is evidence this fetch does not contain: whether the extra cash was still held when rates rose in 2022, whether interest expense differed between constrained firms that saved and hard-hit firms that could not, and whether any similar pattern appears for private firms or households. Until those measurements are available, pandemic cash is a reason some public firms may have needed less new credit, not proof that a borrowing cost fell.