Second, note that before 2007 there were almost no such balances, at least in total. The commercial banks and the Bank of England sought to achieve this result each day but used other very short-term overdraft and loan arrangements if that was not possible at that time. The current situation where all CBRAs are, in effect, bank despot accounts held by the UK’s commercial banks as a mechanism to guarantee their ability to make settlement to each other is almost entirely a creation of the post 2008 global financial crisis as a result.
Yes, the central bank accounts have largely displaced the overnight markets, agreed.
Overall, the sum held on these accounts is not within the control of the commercial banks. The sum that each bank might hold will vary from day to day. However, that is the consequence of payments between banks varying. However, the quantum of funds held in the CBRAs as a whole is determined by the Bank of England
Well, no, not really. Because if the banks went back to balancing their books using the overnight markets then that would affect the central bank accounts, right?
And how might that happen? Well, if the interest rate differential between the central bank accounts and the overnight market became larger than the perceived risks then we might well see a switch back. Which does place a control on how low the interest on those central bank accounts can be, doesn’t it?
But enough of such trivia. Look at the large point here. Spud is now agreeing that banks must balance their books. There is some day to day process and or moment when deposits plus capital must equal loans. The very thing he was denying was true mere days ago.
Is there really a despot account or is his predictive text engaging in a little personal aspiration on his behalf?
Rhoda Klapp
That’s a superb typo – he has such an imperfect grasp of the banking system and money that he frequently contradicts himself even in the course of a day. Not that it dents his confidence one iota
V_P,
It’s the old saying does, if the banking system doesn’t work the way Spud says it works then the banking system is at fault and needs to change.
Gulp!!! At the age of five I decided that, if the world didn’t work the way I wanted it to, the world was at fault not me. And it needed to change itself to what I wanted.
Didn’t know I was so much like Spud.
If loans create deposits, aren’t banks funding themselves, with a lot of help from repo markets to help them roll and kick the can down the road another day? Isn’t that the whole business model of banking?