Savers lose out on £44.5bn as Bank Rate stays at 0.5pc

[AtW]

I get 5% on my savings.

Lending £100 to your poor relatives under exorbitant rate does not count

[AtW]

Which is why I was asking who exactly is going to "save" savers, since the govt and BoE cannot do it.

Banks need money to operate - they have no need to buy money at real price when printing presses of BoE will happily lend them for 0.5% using "AAA" security tulip as collateral and maybe not even that to "ease the flow of credit".

Now imagine BoE gave no money to commercial banks and same did FRS and ECB. What would be the cost of credit on LIBOR? Maybe well over 10% in which case paying decent rates to savers would actually make sense.

However in one swoop modern Western Govts totally tuliped over supposedly market economy and capitalism and fecked over the very people who resisted the temptation to get drunk on debt that is the root cause of current crisis.

[MarillionFan]

Lending £100 to your poor relatives under exorbitant rate does not count

Actually I lent one of my nephews Dave £100 recently for a week on the premise he paid me back £101. At the end of the week he paid me back.
My second, Hans also wanted £100. I lent him £100 and a week later he paid me back £105.
Then my last nephew Giovanni popped up to the house. I told him to fuck off.

[Freamon]

Banks need money to operate - they have no need to buy money at real price when printing presses of BoE will happily lend them for 0.5% using "AAA" security tulip as collateral and maybe not even that to "ease the flow of credit".

But if they have no collateral available then this isn't possible. Over the past few years there have been plenty of times where some banks had no collateral.

Now imagine BoE gave no money to commercial banks and same did FRS and ECB. What would be the cost of credit on LIBOR? Maybe well over 10% in which case paying decent rates to savers would actually make sense.

I don't think it's BoE activity that is keeping sterling LIBOR down. It's simply because there is no demand to borrow (by eligible borrowers).

[AtW]

I don't think it's BoE activity that is keeping sterling LIBOR down. It's simply because there is no demand to borrow (by eligible borrowers).

So in your view LIBOR is currently 0.30% for 1 month because no bank needs any money and everybody has got so much cash that they would be happy to loan at 0.30% rather than use it to lend to credit card users who get charged 20% or even loans secured on houses at 5-7%?

[gingerjedi]

Why do people think they deserve to be paid just for depositing money?

Take a gamble on some bonds if you want to 'earn' money for nothing.

[AtW]

Why do people think they deserve to be paid just for depositing money?

Ok, how about this - when money is deposited it can be lent out at anything 5-20% interest rate. Why do you think people who actually have the money don't deserve the payout?

If banks were only allowed to lend what they have attracted in savings the whole financial system would be far more stable - it would also encourage to save.

[MarillionFan]

Why do people think they deserve to be paid just for depositing money?

Take a gamble on some bonds if you want to 'earn' money for nothing.

That's not gambling. Gambling is seeing who can piss the furthest up a dead Taliban's back. Now that;s gambling.

[gingerjedi]

Actually I lent one of my nephews Dave £100 recently for a week on the premise he paid me back £101. At the end of the week he paid me back.
My second, Hans also wanted £100. I lent him £100 and a week later he paid me back £105.
Then my last nephew Giovanni popped up to the house. I told him to fuck off.

Has Stavros paid you back yet?

[Freamon]

So in your view LIBOR is currently 0.30% for 1 month because no bank needs any money and everybody has got so much cash that they would be happy to loan at 0.30% rather than use it to lend to credit card users who get charged 20% or even loans secured on houses at 5-7%?

You are oversimplifying things.

Firstly there is not an infinite demand from borrowers to take out mortgages or borrow money on credit cards. Secondly, both these types of borrowing are volatile. Banks can get early repayments on mortgages at any time, they can get people adding to their credit card debt at any time, and payments coming in on credit cards at any time. They put a lot of work into predicting and modelling these behaviours but they cannot be 100% certain.

The interbank market is used by banks to manage their day-to-day cash positions. Due to payment events as described above, banks may have surplus cash at the end of the day, or may need some cash to ensure their reserve account is above the regulatory minimum. They use the interbank market to borrow/lend unsecured with other banks, to get some extra cash temporarily to fulfil reserve requirements, or to make a bit of interest on some excess cash overnight by lending it out.

In the olden days (pre 2007) banks managed this cash position fairly aggressively so they ensured they maximised the return on their cash and didn't keep much surplus cash in reserve. But obviously this carries the risk that they may run out of cash and need to go to the interbank market for funds. It was assumed these funds would always be available, and if there was a little bit too much demand then LIBOR would go up, but never by very much, i.e. banks assumed this was a safe approach.

Then obviously the events of 2007 changed this, the interbank market froze (as banks couldn't be sure their counterparty banks would go bust the following day) and this source of funding dried up.

When this happened, in any case where a bank ran out of cash, the regulators stepped in and either took over the bank entirely or took over much of the banks' equity. In both instances they fired the people running the bank.

Obviously once this happened, it became abundantly clear to banks that the penalty for mismanaging your cash position in this way was that your executives got fired and your bank got partly/fully nationalised.

Since then banks have ensured they keep plenty of spare cash lying around (as evidenced by the fact that reserve amounts lodged with the BoE are enormous compared to pre 2007) and therefore the demand to borrow over short term periods has fallen dramatically.

Add to this the fact that most of the world is in recession and therefore very few businesses are investing in expansion, and you also have a situation where demand to borrow over longer periods is massively diminished as well.

All of this leads to the very low interest rates that we have today (both overnight and longer maturities) and has pretty much nothing to do with the BoE.