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So here’s a question for Spuddo

Savers face years of lagging returns because cash-rich banks are unlikely to fully pass on Bank of England rate rises, new analysis shows.

A substantial rise in bank deposits during the pandemic means many high street banks do not need to compete for savers’ cash, according to Deutsche Bank.

Deposits have grown by a quarter since 2019, far outstripping loan growth at 7pc.

Household deposits currently stand at £1.8 trillion, almost matching the amount of outstanding loans in the economy for the first time since records began in 1997, according to Bank of England data.

Corporate savings also climbed sharply during the pandemic.

“There are so many deposits at the moment, and everyone is so flush with liquidity that nobody needs to pass on the savings rates,” said Robert Noble, an analyst at Deutsche Bank.

He added that the trend was likely to remain for “a couple of years”.

Deutsche Bank analysis shows high street banks can afford to lose an average of 14pc of their deposits – or tens of billions of pounds – to other providers before they will need to find other sources of funding. “They could lose a substantial amount of deposits and that wouldn’t matter’,’ said Mr Noble.

If banks simply create the money they lend then why would they ever “need” deposits? Why, if deposits started to either be withdrawn, or moved around, could they “need” other sources of funding?

3 thoughts on “So here’s a question for Spuddo”

  1. “unlikely to fully pass on Bank of England rate rises”: what is the justification for the expression “pass on”? Is it just yellow journalism’s lust for “gor blimey” wording?

  2. I don’t see why banks can’t offer a rate of interest higher than inflation.
    Sure, they’d attract lots of deposits that they don’t need to attract, but equally when people withdraw their deposits plus interest the bank just creates the coupon part.

    Woah, but the rules of bank money creation only apply to lending so you need to attract lots of borrowers in order to create the money, that means lowering the interest rate for them, and then hope they then deposit it back with you for you to pay the coupon for all the savers.

    No competitor bank could survive this strategy. Wells Fargo and out.

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