Why do our banks still need deposits?

S

StoppedClock

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

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

Banks also have to meet certain solvency requirements.
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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.
 
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.
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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.
 
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.
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Don't see your point here? They either borrow from customers or they borrow from other banks.
 
BTW I fully accept that they do need deposits just that the answers people have given so far do not explain it
 
StoppedClock said:
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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Personally I think deposit accounts are just a great way of getting the details of people to whom you wish to flog loans.
 
No financial institution ever unilaterally tried to flog me a loan or other credit product while I was a current/savings account customer.
 
StoppedClock said:
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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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.
 
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.
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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).
 
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.
 
new regulations,

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