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  • FIRST POST
    • thebrim
    • By thebrim 4th Oct 16, 4:33 PM
    • 1Posts
    • 0Thanks
    thebrim
    Closing a no withdrawal savings account.
    • #1
    • 4th Oct 16, 4:33 PM
    Closing a no withdrawal savings account. 4th Oct 16 at 4:33 PM
    I recently deposited a sum of money in a 2 year fixed savings account with no withdrawals! I now need the funds from the account. I spoke to the bank in question and they say it is unlikely that I can withdraw my funds early, however I should write to them to explain the reason why I require the funds and they will look at it. Any ideas on how I should approach this one?
Page 2
    • grey gym sock
    • By grey gym sock 9th Oct 16, 7:32 PM
    • 3,834 Posts
    • 3,233 Thanks
    grey gym sock
    Banks have to work within a strict liquidity framework. This means that they are unable to simply borrow short term (e.g. current accounts) and lend long term (e.g. 25 year mortgage). The reason being that if everyone with a current account opted to close their account the bank wouldn't have the funds to repay everyone.

    As I understand it, the regulator assesses each bank and allows them to use a percentage of call deposits (such as current accounts) to fund long term deals but the vast majority would have to be kept effectively as cash.
    Originally posted by Ballard
    so basically banks do fund a significant part of their long-term lending with short-term borrowing. though they are required to hold a certain amount of very liquid assets. so a small outflow of deposits wouldn't make them insolvent, but a larger outflow could well do so. on the face of it, this does look inherently unstable. however,

    1) if a bank has liquidity problems (e.g. after an outflow of deposits), but the bank of england judges that it is sound in the longer term, the BoE can lend it cash to tide it over its temporary problems (and the BoE really can create unlimited amounts of cash if needs be).

    2) i'm not sure what the alternative is. how much capital is there that people would be happy to tie up for 25 years, at a low rate of interest (whether that's fixed or variable), in order to fund mortgages?

    The idea of banks inventing money is nonsense. Banks lend money which is put in a current account before being paid away. The liquidity ratios are still valid so if I borrow £5,000 for two years and buy a car with it the bank have £5,000 to cover for 24 months. In their ideal world the bank would lend me money for two years at 5% and I'd then place it on a fixed term deposit with them at 2% but I don't see that happening very often.
    note that, when the money from a bank loan is paid away (e.g. to buy a car), it ends up in somebody else's current account (whether that's at the same or a different bank), so the total amount of money in current accounts doesn't go back down again at that point.

    one definition of money is: all the notes and coins in circulation, plus the total of all credit balances in current accounts.

    by that definition, when a bank makes a loan, the total amount of money goes up.

    and when somebody repays a loan, the total amount of money goes down.

    most other transactions (e.g. buying a car) have no effect on the total amount of money, because they just transfer money between different current accounts.

    though of course, if you hypothesize that the person selling the car using the proceeds to pay off a loan, then the total amount of money would go back down again as a result.

    so though "inventing" doesn't explain it properly, banks' actions do affect the amount of money in circulation.
    • jimjames
    • By jimjames 9th Oct 16, 9:01 PM
    • 10,845 Posts
    • 8,915 Thanks
    jimjames
    Well the banks don't seem to want our money or rather they don't want to pay us for its use.
    Originally posted by teddysmum
    I'm pretty happy with the return I'm getting from my bank(s). Not sure how much more return you'd want when inflation is under 1% and you can get 5% on a decent wedge.
    Remember the saying: if it looks too good to be true it almost certainly is.
    • Ballard
    • By Ballard 9th Oct 16, 9:02 PM
    • 1,268 Posts
    • 944 Thanks
    Ballard
    I don't know what liquidity ratios banks have been allocated. You may know more than me as you have used the word significant to describe the proportion of short term funds which banks can use for long term lending. At the last bank that I worked at where I knew the ratio it was 0% but I bow to your judgement.

    If I borrow money from a bank then they will have to borrow it from somewhere. This could be, for example, from another customer or bank. I don't see that this is in any way creating money. In the end I have a credit balance on one account against a debit on another. They balance.
    I got a letter from the government the other day. I opened it and read it. It said they were suckers.
    • grey gym sock
    • By grey gym sock 12th Oct 16, 1:34 AM
    • 3,834 Posts
    • 3,233 Thanks
    grey gym sock
    I don't know what liquidity ratios banks have been allocated. You may know more than me as you have used the word significant to describe the proportion of short term funds which banks can use for long term lending. At the last bank that I worked at where I knew the ratio it was 0% but I bow to your judgement.
    Originally posted by Ballard
    i may well not know more than you. i was mainly relying on the commonplace idea that banks usually use significant shorter-term funding to match longer-term borrowing - "significant" meaning that, in the event that there is a run on their deposits, or their other short-term funding dries up, one would expect them to be unable to survive without liquidity being supplied by the BoE.

    i've had a quick look at nationwide's last accounts. i know they're a building society, not a bank, but i think the same regulations generally apply to them; and they would, if anything, be more risk-averse than actual banks; and their accounts might be more straightforward to follow.

    total balance sheet is £208.9bn.

    on the assets side, £162.1bn of that is retail mortgages.

    on the liabilities side, £144.9bn is retail funding.

    so it would appear they are funding a lot of mortgages with retail funding.

    however, not all of that retail funding is immediate access. so let's look at the "residual maturity" table, which breaks down when financial assets and liabilities fall due.

    there are £151.0bn of financial assets due after more than 5 years.

    and there are £112.8bn of financial liabilities falling due within 1 month (that includes amounts repayable on demand).

    from that alone, if everybody wanted their money out of nationwide, they'd require assistance from the BoE within 1 month.

    the clarify: i don't find this worrying. just trying to see what their funding model is.

    If I borrow money from a bank then they will have to borrow it from somewhere. This could be, for example, from another customer or bank. I don't see that this is in any way creating money. In the end I have a credit balance on one account against a debit on another. They balance.
    yes. well, it depends what you mean by "creating money".

    if you were thinking of banks waving a magic wand - *ting* - and suddenly they have a pile of money, with no corresponding liability ... then indeed that doesn't happen.

    it is more like: *ting* - suddenly the bank has both an asset (in a loan account) and an equal liability (in a deposit account).

    however, the balance in the deposit account is money (by common definitions of money), so in that sense money has been created. it's worth noting that the deposit account is, from the bank's point of view, a liability - it's what they owe the account holder - so it's the account holder, not the bank, who has more money.

    it's also worth noting that a bank can't perform this (*ting*) magic at will, because they have to find somebody who's willing to take out a loan (whom the bank is prepared to lend to).
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