Banks still under pressure?

The banks are supposed to get lending again, and simultaneously rebuild their cash reserves. But Bank of England statistics show that reserves are actually falling, instead.

Figures for last month show that year-on-year, notes and coins in circulation increased by nearly 4%, but reserves held in bank accounts dropped by over 11%.

I reproduce the BoE’s table below (interesting that they present it in a bashful pale grey on white – the visual equivalent of the civil servant’s polite, embarrassed cough?) – click to enlarge.

9 comments for “Banks still under pressure?

  1. April 28, 2011 at 2:48 pm

    I wonder who they are giving all that money to?

  2. William
    April 28, 2011 at 3:05 pm

    Well I am on a mission to rid myself of banks within six months. I’m convinced it’s doable but not yet convinced I can do it. Stories like this do drive me on though.

    • April 28, 2011 at 4:11 pm

      You mean rid yourself of any bank involvement or rid us of banks as well? 😉

      • William
        April 28, 2011 at 4:22 pm

        Myself of course. What other human beings decide is entirely their own affair.
        True gypsies as oppose to those wasters called travellers manage it though I doubt they would freely hand over their ‘method’!

  3. April 28, 2011 at 3:34 pm

    Are you sure you’re reading that the right way round? This is an excerpt from the liabilties side of The Bank of England’s balance sheet, i.e. notes are money they’ve ‘printed’ (and are a liability from BoE’s point of view) and the ‘reserve balances’ are the money that commercial banks deposited with BoE (which BoR owes back to them and thus also a liability from BoE’s point of view).

    We can ignore notes and coins, which is barely a few per cent of all ‘money’ in existence (however defined).

    So the question is, what did the commercial banks do with the money they withdrew? Don’t forget that commercial bansk in turn owe other parts of the government hundreds of billions under SLS and CGS scheme etc.

    Interestingly, those ‘reserve balances’ shot up after QE, i.e. banks sold gilts to BoE and left the money on deposit with BoE (it was a pure paper shuffle exercise).

  4. Sackerson
    April 28, 2011 at 3:54 pm

    Thanks for the correction, Mark. As you say, something appears to be going on and I’d like to know what.

  5. April 28, 2011 at 4:52 pm

    S, what it tells us is that notes and coins in circulation went up £1 billion and that commercial banks withdrew about £4 billion from their BoE reserve accounts.

    We have no idea what they did with the money, but it’s not significant; banks pay about £50 billion a year in PAYE and corporation tax, plus they owe other parts of the govt. hundreds of billions. We know they are barely lending anything, net mortgage lending is also down to +/- zero, and businesses appear to be deleveraging on the whole.

  6. john in cheshire
    April 28, 2011 at 5:15 pm

    I know nothing of this subject, but could it be that it shows savers using their capital, for living expenses, where in earlier years they would have relied on the interest?

  7. April 28, 2011 at 7:20 pm

    John in Cheshire, this table shows (most of) the Bank of England’s liabilities, most of which is money owed to commercial banks (‘reserve balances’).

    It tells us absolutely nothing about the state of play as between individuals and commercial banks.

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