As the financial accounts close for 2023, it is certain that the profits of the country's leading banks will break records. Don't come again. The quarterly results indicated ways. The reason for these benefits is simple: institutions charge more for the money they lend – in the form of mortgages or credit – and pay less for bank deposits. But why are deposits paid so little? I can offer an explanation and unconfirmed doubts.
Interpretation: Banks don't need our money. In the wake of the financial crisis, liquidity spreads were generously expanded out of caution. This is the situation favored by the European Central Bank, which lent to banks on a long-term basis under very favorable conditions. This liquidity is more evident in Spanish banks, compared to other countries in the European Union. Therefore, financial institutions have everything they need to cover the potential demand for loans and mortgages, which has also slowed down because they have become more expensive. In fact, the competition between banks is to attract clients (solvents) who want to borrow. The rest is looked for to sell other, more profitable products, such as insurance or investment funds.
Suspicion: There is implicit collusion between major banks to keep deposit fees low
Suspicion: There is implicit collusion between major banks to keep deposit interest rates low. This means agreeing without saying anything. Look at each other, and as someone who doesn't want this thing, put yourself on the same page. These practices are more likely in highly concentrated markets, such as the banking sector. If this happens, addressing this problem will be a political responsibility. In this sense, the head of the National Commission on Markets and Competition (CNMC), Kani Fernández, stated that this body does not have the necessary tools to investigate whether these practices exist, and made an explicit request to the parties, in the middle of the electoral campaign. The campaign, in order to provide her with these skills. Also in the summer, Nadia Calviño asked financial institutions to improve pay on bank deposits. But the response was lukewarm.
For its part, banking also attracts good competition. He uses it in court to describe the unusual 4.8% tax on his income from interest and commissions as unfair. It is a tax paid only in Spain, and therefore represents a relative complaint in relation to its European competition. A tax that was born in 2022, as an exceptional measure and with an expiration date of two years, but has been transformed: it has been extended until 2024, in addition to the political intention to make it permanent. The combined tax until September 2023 amounted to 1.1 billion euros.
Perhaps indirectly, with or without collusion, financial institutions decided to shift the cost of this extraordinary tax to citizens. If, in the future, the bank wins the funds brought to justice, the government may have to return the collection. We'll pay for it twice. I know there are a lot of conditionals. But let's keep an eye on that.
If the government had to return the exceptional tax collection to the bank, we would have paid it twice
As a result of this situation, the composition of household savings is changing. According to data from the Central Bank of Spain, bank deposits are being replaced by more complex financial products: investment funds and fixed income products, especially treasury bonds. Credits were also reduced, and were at their lowest level since 2021. Both an increase in savings and a decline in credits are desired consequences as interest rates rise to reduce inflation.
Finally, a look to the future. The banks are repaying the soft loans they obtained from the European Central Bank, which is the main reason for this excess liquidity. Those coming from now on will carry an updated interest rate. For this reason, some higher deposit interest rates were announced a few months ago. The primary beneficiaries: those with greater negotiating power, companies and individuals with large capital. The second beneficiary: new customers, who bring in payroll, buy insurance, or make the bridge vertical.
The other scenario is that the European Central Bank, after controlling inflation, decides that calming the economy is sufficient and lowers interest rates again. If this happens, this timid upward trend in deposit bonuses will also reverse, and the wave of high interest rates will be long overdue for small savers. However, for now, congratulations to bank shareholders.
