How can banks keep in business with zero IRs?

Electrum

I can understand the banking crisis worsening, with such low interest rates where does the income come from to keep the banks afloat?

Are they relying on repossessing properties in the future?

ess0two

IR .25%, average mortgage rate 3%+.

Mr.Generous

they can borrow from bank of england at base rate, they lend at a higher rate. Whatever the rates are the banks make a margin.

cells

Mr.Generous wrote: »

they can borrow from bank of england at base rate,

no that is wrong, the base rate is the rate the BOE gives to banks that want to deposit the banks cash at the BOE

But your second bit was correct. Banking is a bit like a utility the utility will always be profitable but in the short term there can be losses if competition pushes margins below costs but all that will mean is one or more banks get bought out and the sector consolidates and the utility that is banking continues

cells

A significant portion of depositors get paid 0% interest even when the base rate was 5% because they would not shop around for interest paying accounts let alone the best interest paying accounts. In the past the banks made 5% off these people (0% to them while 5% to the borrower) but now the banks are only making maybe half of that off these people (still 0% to them, while 2.5% mortgages to borrowers).

So the low rates and low inflation are helping the lazy deposit saver and costing the banks.

This is the reason why when rates go up mortgages wont go up as much. Even if the BOE increases its base rate to 5% a large chunk of the banks depositors will still be getting 0% as they dont shop around. Thus even with a higher BOE rate the banking system can offer lower and lower spreads. So much so that if the BOE rate is 5% banks can offer slightly less than that and still make a profit just like in the past when some banks were offering trackers at BOE minus 0.1%

antrobus

cells wrote: »

no that is wrong, the base rate is the rate the BOE gives to banks that want to deposit the banks cash at the BOE...

No, you are wrong. The Official Bank Rate aka the BOEBR is the rate that the Bank of England charges banks for overnight lending.

cells wrote: »

...But your second bit was correct. Banking is a bit like a utility the utility will always be profitable but in the short term there can be losses if competition pushes margins below costs but all that will mean is one or more banks get bought out and the sector consolidates and the utility that is banking continues

Banking will always be profitable? Are you having a laugh?

RBS has made losses for the past eight years. It's not that difficult you know.

CLAPTON

Electrum wrote: »

I can understand the banking crisis worsening, with such low interest rates where does the income come from to keep the banks afloat?

Are they relying on repossessing properties in the future?

what banking crisis?

ERICS_MUM

Perhaps they are looking at more commission-based income and not relying on interest income ?

cells

antrobus wrote: »

No, you are wrong. The Official Bank Rate aka the BOEBR is the rate that the Bank of England charges banks for overnight lending.



Banking will always be profitable? Are you having a laugh?

RBS has made losses for the past eight years. It's not that difficult you know.

#1 no
#2 do we still have the utility that is banking or has this industry gone the way of the dodo?

Thrugelmir

Electrum wrote: »

I can understand the banking crisis worsening, with such low interest rates where does the income come from to keep the banks afloat?

They'll cut risky lending. Mortgages will be given to those with blue chip credit ratings. Investment banking will continue to contract. Putting yet more more people out of a job.

michaels

ERICS_MUM wrote: »

Perhaps they are looking at more commission-based income and not relying on interest income ?

Yep - apparently banc-assurance, cross-selling payment cover to borrowers, is the next big thing. Guaranteed earner