Irish Examiner view: The banks have always had it both ways

Amid the current turmoil, Ireland's banks ought to do more to win our loyalty — for instance by offering fairer rates to savers

Customers, consumers, community: Call us what you will but — not unlike the townspeople portrayed in the movie 'It’s a Wonderful Life' — our interests are not being served by banks. File picture

According to the Taoiseach, the banks “cannot have it both ways” after the European Central Bank applied its sixth rate increase within 12 months, on this occasion by 0.5%, as part of its crusade to squeeze inflation out of the economic system. 

The people most immediately affected are mortgage holders who are already struggling to balance the twin demands of a stubbornly high cost of living and additional repayments from domestic budgets which are, in any real sense, stagnant.

However well-meaning the sentiments from Mr Varadkar, the actuality is that banks have been playing both ends against the middle since time immemorial. 

The bank always wins 

Quick to raise rates to borrowers in the noble cause of taming inflation — which was unleashed, in significant part, by an alliance between politicians and the financial services sector. 

Very slow to reward lenders by improving the returns they enjoy for allowing banks to use their money and gaining privileged access to them and their data.

Of course, there has always been a mismatch between these two charges. That used to be the way that banks made their profits before many of them became involved in a game of global financial roulette and were tempted or suborned by complicated financial instruments promising ever increasing payback. 

The reward that clients generally receive on deposits remains niggardly in comparison to that you will be charged for your mortgages and other borrowings.

Savings are withering

Savings rates in Ireland have withered over the past few years with many accounts paying zero or 0.05% of interest in the past 12 months. A €50,000 deposit brings you back just €25 a year in interest — before tax. Almost laughable.

Of course, the banks rely on our general reluctance to keep moving from account to account in order to gain advantage, allied to the fact that there can be a conservatism among customers to shifting savings to newer, and sometimes flashier, brands.

It must be noted that being long in the tooth does not always bring reassurance and comfort. 

Silicon Valley Bank may have had the meretricious attraction of being a hi-tech investor, but the venerable Credit Suisse has proved to be the bigger risk to global stability. Credit Suisse was formed in 1856. If you can’t trust the Swiss with your money, then what is the world coming to?

The current tremors in the tectonic plates of capitalism have not yet reached the level of 2008 when we experienced the greatest failure of our financial system in the history of the State. The inquiry that followed that crisis urged that the mismatch between assets and liabilities (that is, funding long-term loans with short-term deposits) had to be scrutinised. 

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That issue was prevalent in the collapse of Silicon Valley Bank. But Credit Suisse is of a different order of magnitude. It is one of the world’s largest wealth managers and is one of 30 important banks which can be said to be “too big to fail”.

This will not be the last financial challenge of 2023.
Banks may find that they have to do more for our loyalty and support. 

A good start would be to offer fairer rates of return more quickly.