Standard Variable rate rises - you've never had it so good

I give it till January at the latest for AIB and BOI to hike up their Std variable rates.
Consensus is for an additional 1 per cent increase in margin. … 94985.html

At the height of interest rates, I thought that if the ECB did drop their rates, the banks would not follow suit. How wrong was I?

It seems incredible to me that the banks, who were insolvent, being bailed out and losing money were reducing their interest rates so long. The only logical conclusion was that there was government pressure on them to keep rates low so that voters would be happy and young people would be tempted to hop on the property ladder in 2008 (they weren’t).

But with the complete and utter gift that is NAMA, will the banks do whatever they are told or will they do what is best for them? I think the lie that NAMA is there to restore the banking system is exposed if it appears that NAMA is tied to low interest rates. Without higher margins, the bank’s ability to bring in income to offset bad loans is severely diminished.

NAMA, political pressure to keep interest rates low and property prices high - stagnation here we come.

The Irish banks will also be starved of deposits thanks to the likes of Nationwide UK, Ulster Bank, Halifax, Northern Rock and Investec who will be earning much higher interest margins in a post NAMA world and thus can offer better rates to savers.

AIB & BOI have already become totally uncompetitive for deposits - one wonders how long Irish Nationwide can compete.

I think this is part of the same story - the banks are having problems bringing in money to lend out at margin - they know they will have to pay more to get that money - probably at least 2.5% on a standard easy access account - so to pay for those rates they need to up lending rates. It’s only political pressure that is keeping rates down at the moment. Once the first stage of NAMA is done they will be cranking up rates. As another poster suggested - probably Jan/Feb for the big two and whatever falls out of EBS/IN/PTSB. RaboBank are getting their money cheap at the moment at 2% because they are offering a ‘security’ premium - they are essentially the market makers for day to day money at the moment. I would guess that if the market ‘normalises’ after NAMA rates for borrowers and lenders will rise probably between 0.5 and 1% for borrowers with lenders getting 0.25% less to up the banks margin.

Agreed that AIB and BOI are totally uncompetitive for most deposit products. They generally rely on consumer inertia/laziness.

The general rule is that the foreign banks are the place to put your money if you want a return. There is one exception at the moment, Irish Nationwide. They are so desperate for cash they are offering the best rates, for almost all savings products, on the market.

From Askaboutmoney

I disagree, the banks will do whats best for themselves. Once NAMA is passed , the banks will have no sense of obligation to anybody except their shareholders. Post NAMA, banks will still be under capitalised. The only way to improve their capital base will be to attract more deposits and to do this, they will have to increase interest rates. Remember, ‘the banks are of systemic importance’ and without them the economy and the state will fail (at least that is their argument to date and our idiotic politicians FF, green and FG have bought into this and can’t abandon this mindset).

Maybe you’re forgetting something, but banks only obligation ever is to their shareholders (and bondholders).

Unfortunately they are run by incompetent nincompoops who pissed away all their shareholders money and more besides in order to get bonuses for themselves.

Unfortunately their eunuch institutional shareholder (and bondholder) owners are equally incompetent nincompoops who should have cried halt but didn’t because they have less balls than a South African sprinter.

I stuck 30K into an EBS 1yr fixed which is due to mature in 10 days time, they wrote to me the other day informing me about the account and what my net amount would be. I then discovered that they are deducting DIRT at 25pc on the full amount even though 25pc dirt didnt happen until the April 09 budget. I’m assuming this is happening to all accounts and it could run into tens of millions of euro, is this going to be the financial scandle of 2014.

Dirt went up from 20pc to 23pc in last Oct’s bdget but when exactly does it kick in ? was it that night of the 1st of Nov ?

DIRT went up from 20% to 23% effective 1 Jan 2009.
In the emergency budget it went up to 25% effective pretty much immediately.

It doesn’t matter when you made your investment - you are taxed at the rate that applies when the interest hits your account.

DIRT is likely to go through the roof in future. Saving is an activity the government wants to discourage - like smoking cigarettes or burning fossil fuels. Savers don’t buy houses. The Irish banks will get feck all deposits post NAMA anyway because they won’t be able to pay competitive interest rates due to political pressure on the lending side. They will be reliant on the wholesale markets / NAMA bounty / govt, so raising DIRT will only hurt the foreign banks.

When choosing a savings product, you should think about how frequently interest is compounded. Ulster Bank recently changed to crediting interest quarterly, presumably to help customers mitigate the spiral in DIRT rates that awaits us. Some of the other banks also offer monthly interest with no penalty (thinking of Nationwide UK)

Correct me if I am wrong, but deposits constitute bank capital not. Deposits are actually bank liabilities.

Erm, aren’t they both? They are not equity capital, but they are capital, same as the cash that the sale of bonds raises. But the terms of the account are an IOU that reflect a liability (whether it is instant or term return of money).

Have never heard it described thus. Deposits are certainly not counted in capital ratios.

BOI and AIB liquidity benefits from near duopoly on current accounts (margins too as c/a are low cost sources of funding).

No, and nor should be as they have a matching liability, but the point I am making is there are two sorts of capital - equity capital that has to remain unencumbered to account for the possibility of losses and working capital from which loans are made. Without deposits, bond sales, interbank borrowings, current account surpluses (as you rightly point out), banks cannot make loans. But equally, they cannot account for losses from this working capital.

Without an increase in either the leverage ratio (risk) or the amount of working capital, banks cannot lend. Now risk-weighted capital ratios have been used to circumvent this, but one of the things that seems to be coming out of the G20 is that there should be a move from risk-weighted to absolute capital ratios (i.e. a maximum leverage ratio for banks). It’s all very well to say that when a loan is given that a deposit returns to the banking system, but this doesn’t help a specific (or a pair of specific banks in the Irish case) give further loans. Unless they can repo, securitise, or otherwise sell on the loans they have given out, sell some bonds, or attract more deposits they will pretty quickly run out of working capital and so will not be able to give out more loans.

This appears to be what is happening in Ireland at the moment. There is low-level capital flight - loans given out by the Irish banks are resulting in deposits going to foreign institutions. They are then free to lend where they want, but that doesn’t have to be in Ireland. So the Irish banks are going to have to up the amount they offer on deposit if they want to stem this flow, which will lead to increases in the cost of funding.

What NAMA will do to some extent is free up some risk-weighted capital - 25 bn going to the big two swapped for assets that currently attract a 17% haircut at the ECB (if they were securitised) and probably more on the interbank market will be replaced with NAMA bonds that will have a 0.5% haircut at the ECB and maybe a little bit more on the interbank market. The problem is that these NAMA bonds are being swapped for discounted assets, under 20% (whatever that means), so the net effect on the capital position of the banks may well be zero. In which case, there may not be a new flood of lending…

Or am I talking bollocks again?

Apologies, you are quite right, deposits per se are not usually considered to be bank capital. Under the double entry book keeping system, deposits are considered to be liabilities and also as assets.

The point that I was trying to make was that NAMA will still leave the the banks with large liabilities.

Without deposits, money expansion using fractional reserve banking and thus liquidity will not improve. To attract these deposits, deposit interest rates will have to rise.
Once NAMA is passed, any impression that the banks have an obligation to the government to keep interest rates down will evaporate.

I should have known that pinsters are too erudite to let me get away with any fuzzy logic :slight_smile: