Categoría: Banking

Link: Interest rate rot hits regular-saver accounts

Author: Sam Baker

Date: 14th October 2019 / 5:30pm

Media: The Telegraph (UK)

What happened?

British banks are lowering interest rates on the top regular-saver accounts, due to financial problems arising from the country’s political and economic situation (Brexit). Consumers are affected because banks only benefit those accounts that have monthly cash income.

Whom and where it affects?

The protagonists of this news are the private banking and consumers. The news is located in the United Kingdom.

What sort of public or private institutions are involved?

The public institution involved in this news is the Bank of England. There are private banks that also appears in the news such us: M&S Bank, HSBC, First Direct, Nationwide, and Virgin Money.

Why is it important for Banking and Finance?

This news is very important for Banking and Finance, because it reflects how the concept of “savings account” is losing its meaning. If rate cuts continued: where is the consumers’ savings? If this trend continues, we would end up paying interest rates for maintaining a savings account.

What do you think will be the consequences in the foreseeable future?

The imminent Brexit as well as a possible global crisis are factors that can lead to zero (or even negative) interest rates. With this low interest rate policy, savers will lose: they will see how their deposits will barely be remunerated, in cases of companies, banks will start charging their large clients for saving their money. This is something that is already happening throughout the European Union. On the other hand, low interest rates will benefit debtors, as it allows them to pay less for their debts. In addition, the new loans will be cheaper.

Key words:

Regular-saver accounts, Brexit, consumers, banks, cash income, private banking, the Bank of England, savings account, rate cuts, trend, zero interest rates, low interest rate policy, deposits, debtors, loans.

Link: Banks expect to cut business lending at fastest rate since 2008 crash

Date: 17th October 2019

Media: The Guardian

What happened?

The bank of England made a survey which shows that banks plan to reduce the rating in response to rising defaults and a fall in demand.

Whom and where it affects?

It affects banks and individuals. Banks have seen the biggest collapse in demand from commercial property companies. On the other hand, individuals are expected to find it more difficult to get credit over the next three months as banks and building societies cut the length of interest-free period on new credit card lending.

Apart from the reasons just explained, british businesses will be affected because of Brexit, a phenomenon that is growing in the United Kingdom.

What sort of public or private institutions are involved?

The first involved is the Bank of England because they made the survey. Second, the banking sector because it is the one that is going to cut its lending to businesses. Finally, the lenders, who were asked to answer several questions in order to have this survey made.

Why is it important for Banking and Finance?

It is important for banking and finance because the finance industry, as the figures revealed, shows an increasing caution across it. With money so cheap, there is a lot of debt out there and the worry is that for some people it is starting to be reflected in their daily life.

What do you think will be the consequences in the foreseeable future?

As a consequence, we can say that default rates are going to increase slightly which may lead to bankruptcy. This will affect not only the United Kingdom but will also spread to Europe and, in a long term, the rest of the world. Not to say that the first affected will be the citizens, who are going to have financial problems with their repayments.

Key words:

Default, bankruptcy, loan, debt, lenders, mortgage, Bank of England

Link: Post-Crisis ECB Considers How It’ll Set Rates in the Future

Date: 14th January, 2019

Media: Bloomberg 

What happened?

After pumping cash into the markets for over than a decade, the European Central Bank (ECB) is considering the way it controls interest rates and transmits monetary policy. The ECB will have to determine its monetary policy framework to adapt it to a new era characterized by the contraction of the stimulus measures and the reduction of its balance sheet and excessive liquidity.

Whom and where it affects?

It mainly affects the ECB and the national central banks of all countries that have adopted the euro.

What sort of public or private institutions are involved?

Among public institutions involved, we can find the European Central Bank (ECB), the Federal Reserve (FED) and the Bank of England (BOE). 

Why is it important for Banking and Finance?

Changing the monetary policy framework of the Eurosystem could affect the entire banking and financial system. The main objective of the ECB is to maintain price stability in the euro zone; through interest rates, it can influence economic activity, alining it with inflation objectives. 

Focusing on the banking sector and taking into account that one of its main functions is to transmit monetary policy, a change in its framework would mean a turn on its business strategies.

What do you think will be the consequences in the foreseeable future?

Since the main objective of the Eurosystem is to ensure price stability and taking into account that the HCIP (Harmonised Index of Consumer Prices) is around 2.1% for the euro area, what we can expect is the implementation of monetary policies that prevent higher inflation. This will inevitably lead to the reduction of the quantitative easing programmesand the rise of interest rates on Main Refinancing Operations (MRO), Deposit facility, and Marginal Lending Facility.

The increase in interest rates will make borrowing more expensive and saving more attractive. This will have important effects throughout the entire financial system and affect growth development. Some of the plausible consequences of this decision could be: the increase of interbank lending rates (Eonia and Euribor) and the subsequent effect on assets that depend on these indexes; more expensive bank loans and credits and more attractive deposits, a situation that might improve banks’ income statements; increasing yield expectations over bonds, rising financing costs both for governments and corporations, and putting pressure on stock markets, demanding higher returns.

Summing up, a change in the monetary policy framework would inevitably lead to a scenario of costly financing, investment decline and more savings that would cause a deceleration of economic growth. Nevertheless, it is important to emphasize the complexity of this decision, that would be made after careful deliberations and in the right time.

Key words:

Monetary Policy, ECB, Deposit Facility, Eonia and Euribor.