Actually I would expect deposit rates to begin increasing. They will be increasingly reliant on this source of balance sheet growth. However, that will come after a period of adjustment as banks try to close out what are now loss making elements of their business.
The most ‘ironical’ aspect of Citi saying this is that most of the involuntary asset growth has come from banks having to pull SIV and other conduit assets back onto their balance sheets. Citi itself has turned into the Mr. Creosote of the asset world with its brown ale and quails eggs RMBS giving it severe indigestion. Despite the middle eastern maalox, a wafer-thin mint is all it’s going to take!
Anglo Irish Bank increased their deposit rates last week. They offer 5% for any amount if you leave it in for 1 year. This seems to be the highest rate for large lump sums. I reckon Anglo are trying to improve the amount of retail deposits they have since the money markets seized up.