Flighty depositors are a risk for banks

17/12/2009

RBA deputy governor Ric Battelino yesterday discussed how easily customers can withdraw their money from banks and other institutions and eave them short of cash. The major theme of Battelino’s speech was really the flightiness of bank liabilities, almost regardless of their source.

He noted, consistent with the draft liquidity policy of APRA, that what he (and APRA) term “internet deposits” are “less stable than other at-call deposits”. So too, he said, were deposits from corporates and other financial institutions.

Battelino did not go into reasons, though more professional management of this money is obviously one. The lessons from the flows of corporate funds out of unguaranteed British banks in to guaranteed Irish banks early on in the worst phase of the crisis in 2008 may be another.

He also pointed out that the effort to extend the maturity of a bank’s deposit book by piling on term deposits has flaws, since depositors still expect to withdraw funds at short notice (though forgoing interest) and banks can hardly decline to do so.

Source: The Sheet

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