Current account interest rates are set to drop

Banks have a pool of money called ‘zero rated funds’, this is the money that they hold for which they are paying no interest. Lots of current accounts fall under this category, and banks can figure out with time, the block that is there on a regular basis when you remove the marginal volatility in the funds held at any time.

Imagine you own a money shop and you buy in money and sell it too, in the till you know that no matter what  happens you always seem to have at least €60 in the till, that would be the equivalent of your zero rated funds (hope that makes sense!).

When banks lend they take these zero rated funds and mix them with money bought on the market to come up with ‘blended rates’. So while some money is costing 0% other money might cost 1.269% (that’s today’s 3 month Euribor ), you then get an average of these and depending on what the ‘blend’ or ‘mix’ is your …

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Balance Sheet Expansion

Tom Keene of Bloomberg talks about the Fed and the results we may see of the solutions being put in place by Ben Bernanke. He makes the interesting and valid point about Ben Bernanke being one of the best living historians of the Great Depression and why it puts him in the unique position of being able to navigate the situation the US economy is in. 50 beeps in the 10 year treasury equates to nine big figures on Euro Dollar, so going from $1.30 to $1.39. Tom also talks about savings rates. Great viewing.

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The bailout has arrived, Irish banks in line for Government funds.

The banking bailout has come along, as many of us always thought it would, in the form of a (potential) €10 billion Euro package. An announcement was made yesterday and shares in financial institutions surged on the back of the news. The actual details of the deal are scant at present.

The Minister of Finance remarked on RTE radio that the main thing he hoped to see as a result of this was for lending to return to the market, we can only assume this refers to enterprise lending and not to mortgages as the mortgage market has not frozen to the same degree the business loan/credit area has.

The National Pension Fund Reserve is the area the funds will come from, an obvious issue here is that the fund made losses of c. 33% in the last year and cashing out now will mean those losses are crystallised without hope of return should the markets come back any time soon. …

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