IT Opinion:" Irish Banks are fully justified in keeping deposit rates low"

"Irish banks incurred a cost of 0.5 per cent to place their excess deposits with the Central Bank but did not pass this cost on to retail customers."

Is this completely accurate? Irish banks introduced fees to customers, which I assume in part was to offset cost of placing excess deposits.
 
murphaph1 said:
Irish deposit customers are equally fully justified in seeking a reasonable return for their money somewhere else!
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It's the lack of "seeking" on depositors side that is the problem. Some may have gone seeking but most have stayed put.

With 94% of household deposits sitting in current accounts and overnight deposits and banks only needing 70 cent of every euro on deposit. Why should the banks budge if the depositor isn't.

If the loan to deposit ratio was to rise to 90% or higher I could see banks starting to pay up but when will that happen? That would require either an increase in lending or a decrease in deposits. In terms of the former no sign of any real increase in recent months. At best banks are lending just enough new business to offset what's being paid back. In terms of deposits by households they've been steadily increasing.

We're our own worst enemy, we're neither willing to shop around for deposits nor are we borrowing enough to warrant higher deposit rates.
 
He's taking liberties with the truth there. The ECB had been paying interest on deposits since September 2019.
 
Correct, that was the rational for introducing fees and eliminating the majority of free bank and charge offsetting.

Incidentally, notwithstanding the 4%+ increase in rates they are receiving since charges were introduced, the banks have kept all such charges in place, and continue to increase them where possible.
 

100% agree that this cost was passed back to the retail customer. Albeit not as a specific interest cost.

Psychology of retail customer would have meant that a negative interest rate would see a lot of funds becoming 'mattress money'. Maybe even if enough people withdrew funds it could have caused a bank run.

People couldn't stomach losing money to interest by putting it with their bank. so banks had to become creative. Reintroduce bank account maintenance fees. People understood a bank account fee and while they might grumble about it, would suck it up easier

I saw some workings that the average person had ~10k of savings. 10k *0.5% is 50 EUR. which coincidentally was about the same as the annual additional fees banks started charging. So yes, the banks DID pass on the 50bps charge from the ECB to customers. They just called it something else. And smaller depositors ended up subsidizing bigger depositors (as its a flat fee rather than a progressive fee)!

Now banks got a little greedy and seem to have increased these fees a little since introduction, but even with the 50bps ECB cost gone, the banks have no competitive need to stop charging these fees. It all adds to their bottom line. Possibly banks see this as a way to start clawing back what they paid to Dept of Finance as their additional banking levy?
 
"Free banking" was a gimmick, and a very stupid one. Complete "shot in own foot" by the banks, and it did immense damage. Retail banking is an expensive service to maintain. Offering it free of charge has resulted in savage cuts to the retail bank presence across the country, chronic underinvestment in banking infrastructure and a huge deterioration in the serve being provided to customers. Unfortunately when you make an offer like that available, it's very difficult to withdraw it. We did see a return of modest fees over recent years, when the banks' backs were to the wall because of the low interest rates. Sadly, the market has now diminished to the point where it's easy for the banks to operate a de facto cartel, which is why they were able to ramp up borrowing rates, freeze deposit rates and maintain charges. Thankfully the long overdue move by the NTMA together with a lot of bad publicity has forced the banks hand and resulted in a positive move on deposit interest rates, though this was very much a marketing exercise as the rates applying to the bulk of deposits are still ridiculously low by European standards. To return to the topic of the thread, there was no justification whatsoever for keeping rates low, and it's still very difficult to justify the current rates. Unfortunately there is nobody who can represent the interests of depositors against the powerful vested interests.
 
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