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On the face of it, this is not true; net interest margin is still the main profit driver, followed by fees. But besides that, retail deposit customers are a con
by tadfisher 9mo ago
On the face of it, this is not true; net interest margin is still the main profit driver, followed by fees. But besides that, retail deposit customers are a conversion funnel for more lucrative financial products such as credit cards and personal loans.
And besides that, banks need capital reserves in the form of customer deposits; if too much money flows out then they will have to either acquire customers or pause their real moneymaking activity (loans).
Your account doesn't make them significant money. Retail banking in general makes boatloads of money, and deposits are central to this now that we're out of zero-interest-rate-land.
- nerdsniper 9mo ago> And besides that, banks need capital reserves in the form of customer deposits USA's fractional reserve requirement is now 0%. UK has also gotten rid of their reserve requirement as well. In the UK, the limit to what the bank can loan out is more determined by the market cap of the bank (committed shareholder value). Cash is only strictly needed to cover ... customer deposits. So in the UK, if a bank gets rid of customer deposits entirely, then it kind of doesn't need any cash anymore. It can just lend money out of thin air based on its total net worth (market cap).
- deleted 9mo ago[deleted]
- tadfisher 9mo agoThank you. I should probably know this, but I'm on the engineering side of things and not the business/operations/finance/whatever side.
- bigbadfeline 9mo ago> Retail banking in general makes boatloads of money, and deposits are central to this now that we're out of zero-interest-rate-land. Talking about banking in general is generally a huge mistake. While deposits may be central, retail deposits are irrelevant for the banks that do > 70% of banking. > now that we're out of zero-interest-rate-land. Doesn't matter to them.
- loloquwowndueo 9mo ago> retail deposits are irrelevant for the banks that do > 70% of banking. We’re talking about an individual sticking it to the bank he has an account with by cancelling it. Retail sounds entirely relevant here.
- bigbadfeline 9mo agoThe bulk of deposits in those banks don't come from individual retail and thus the individual's got no sticking power. Citibank interest rate on savings accounts is less than 1%, more like 0.1%, and there are account fees too. They're telling you load and clear "We don't want your money" - you can't argue with that empirical evidence, straight from the horse's mouth.
- direwolf20 9mo agoBanks get their reserves by borrowing from the Fed or from other banks that may have deposits. The idea that banks get reserves from deposits is severely outdated. Deposits are free reserves to the bank, but the overhead of maintaining customer accounts makes them an unattractive option.