# Why do our banks still need deposits?



## StoppedClock (28 Sep 2006)

If mortgages are funded by money sourced on International Money Markets (carry trade etc) and _your big friendly Irish bank merely service the mortgage - the rights could well be held by some stressed overseas hedge fund* _then why do banks still need deposits?





_*© remix_


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## CCOVICH (28 Sep 2006)

Becuase deposits are generally the cheapest way to finance a mortgage.

Banks also have to meet certain solvency requirements.


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## StoppedClock (28 Sep 2006)

CCOVICH said:


> Becuase deposits are generally the cheapest way to finance a mortgage.
> 
> Banks also have to meet certain solvency requirements.


 
But they seem to offer some deposit accounts with rates above lending rates.  Also if they repackage and sell lonas on then it is no longer on their books and so the solvency requirements would not apply?

Finally since customer deposits are really loans to the bank surely they can borrow from other banks to meet solvency requirements. Which would be cheaper and less hassle.


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## ClubMan (28 Sep 2006)

StoppedClock said:


> But they seem to offer some deposit accounts with rates above lending rates.


Mortgage lending rates maybe but definitely no unsecured personal loan or credit card rates!


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## gearoidmm (28 Sep 2006)

StoppedClock said:


> But they seem to offer some deposit accounts with rates above lending rates. Also if they repackage and sell lonas on then it is no longer on their books and so the solvency requirements would not apply?
> 
> Finally since customer deposits are really loans to the bank surely they can borrow from other banks to meet solvency requirements. Which would be cheaper and less hassle.


 
In order to loan the money in the first place, before they package it up as a bond, they have to have a certain amount on deposit.  You suggest that they could just borrow the money from other banks - where would they get the money - it has to come from somewhere.


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## StoppedClock (28 Sep 2006)

gearoidmm said:


> In order to loan the money in the first place, before they package it up as a bond, they have to have a certain amount on deposit. You suggest that they could just borrow the money from other banks - where would they get the money - it has to come from somewhere.


 
Don't see your point here?  They either borrow from customers or they borrow from other banks.


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## StoppedClock (28 Sep 2006)

BTW I fully accept that they do need deposits just that the answers people have given so far do not explain it


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## room305 (28 Sep 2006)

StoppedClock said:


> BTW I fully accept that they do need deposits just that the answers people have given so far do not explain it



Personally I think deposit accounts are just a great way of getting the details of people to whom you wish to flog loans.


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## ClubMan (28 Sep 2006)

No financial institution ever unilaterally tried to flog me a loan or other credit product while I was a current/savings account customer.


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## dontaskme (10 Oct 2006)

StoppedClock said:


> BTW I fully accept that they do need deposits just that the answers people have given so far do not explain it


 
I'd guess it's good risk management practise, if you are lending relatively small amounts to a large bunch of people, then this can be "matched" by taking relatively small deposits from a large bunch of people.

If you take one big loan from another bank and use it to sell mortgages to lots of people, what would happen if the other bank got into trouble and tried to call in its loan? 

It's a good principle in risk management to match assets and liabilities.


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## whizzbang (10 Oct 2006)

ClubMan said:


> No financial institution ever unilaterally tried to flog me a loan or other credit product while I was a current/savings account customer.


not even on an ATM when you are taking out money?


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## ClubMan (10 Oct 2006)

No.


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## Eurofan (10 Oct 2006)

ClubMan said:


> No financial institution ever unilaterally tried to flog me a loan or other credit product while I was a current/savings account customer.



We get them at least a few times a year, pre-approved loans, pre-approved overdrafts, credit card offers etc. etc. At least twice a year our credit card limits are increased without consultation with an advised option to retain the older limit if we desire.

Doesn't seem to matter what your credit 'profile' is either. Both of us are entirely debt-free, always clear credit cards each month, decent amounts on deposit etc.

Friends of ours who are quite the opposite seem to get these offers just as often but are more than happy to accept them (they live off credit).


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## Foxtrot (11 Oct 2006)

I have accounts with two banks, and one is constantly trying to sell me various unnecessary insurance, credit cards and investment products, the other never contacts me at all unless I request a statement. I think they just have different marketing approaches.


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## baby_tooth (11 Oct 2006)

new regulations,

not allowed to offer pre approved loans or increase cc limit and so on.


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## Arthur Daley (13 Oct 2006)

When you're lending money at the rate it's been dished out over the past few years you've got to keep liquid. Deposits help banks maintain a liquidity ratio to keep the Central Bank happy as loans tied up in property, shopping centres etc are not by definition very liquid.


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## ClubMan (13 Oct 2006)

What is the liquidity ratio required by _Irish _banks?


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## Arthur Daley (13 Oct 2006)

ClubMan said:


> What is the liquidity ratio required by _Irish _banks?


 
25% minimum. So Assets Excluding loans must be at least 25% of Liabilities.


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