Question: Bank funding

Tell me, why is the six month deposit rate at its lowest level since December 1970 if it is so hard for bank’s to get funding?

Apologises for the lack of posting and commenting lately – I am close to infinitely tied up with other exciting forms of economics.  I will try to write a few posts to turn up on a time delayed basis tonight.  Answering your intelligent comments will take a little longer – but I will try to give it a go during the weekend 🙂

6 replies
  1. moz
    moz says:

    People expect/demand that mortgage rates not vary much from the OCR. Limited return on money lent means limited ability to pay for it.

    If the banks responded to the crisis by offering 10% or more for deposits, they’d also want to set mortgage rates at higher than that level. Quite how the merchant banker in chief would react is anyone’s guess. Try that with the Australian banks and watch Kevin Rudd go apoplectic in public… I don’t think we’d have “Mortgage Watch”, we’d have usury legislation passed the same day. Not that that is bad in itself, but it’s not even close to what we have now. Great way to wedge the coalition though 🙂

  2. Miguel Sanchez
    Miguel Sanchez says:

    How do they look in terms of real after-tax returns? I suspect they’re only as miserable as they’ve ever been.

  3. Matt Nolan
    Matt Nolan says:

    “People expect/demand that mortgage rates not vary much from the OCR. Limited return on money lent means limited ability to pay for it.”

    True – but if the bank couldn’t get profitable funding at that rate they would just stop loaning out!

    “How do they look in terms of real after-tax returns? I suspect they’re only as miserable as they’ve ever been.”

    Probably – but I still feel like the story of “credit constraints” can be overplayed. And this is an important point – given that credit constraints provide the real reason for a lot of intervention here.

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