bank run?

[Tarrel]

I really don't know. There have been a lot of mixed messages coming out of the Bank of England recently.

Just last week there was talk of "negative base rates". In other words, the BofE would charge banks for holding their reserves in the BofE, thus encouraging them to lend more, thus stimulating the economy. This would be an alternative to Quantatitive Easing (money-creation). The Chancellor kind of reinforced this idea when he said that he had authorised the BofE to use "unconventional monetary instruments" to create economic stimulus.

HOWEVER - just today the BofE has issued an edict requiring banks to increase their capitalisation by 25 billion pounds. This involves them raising more capital, possibly lending less, and stashing more of it in the BofE!

The banks are also struggling to make a profit at the moment; something that is essential to avoid even more capital flight away from the banks, in the form of shareholders selling their shares. So there is likely to be a lot of pressure on banks to generate more income.

From an economic stimulus viewpoint, money sittiNg in savings accounts is dead money. I can actually see a situation in which the banks, with the blessing of the government, reduce savings rates to near zero and even start to charge savers for the service of "safely holding their money" for them (a negative interest rate if you will). This would force savers to find another home for their money, such as property, stocks and shares, etc, all of which would create economic stimulus.

We're in exactly this situation. When we made our life-changing move to Scotland we released a tidy sum after the sale of our house. The plan was to put it into a fixed rate savings account, risk-free, and have the interest contribute to our income. There are no decent rates around that will allow us to do this, so we,re now having to look at higher-risk investments at an extremely volatile time in the financial world. We have no pensions to speak of, so these decisions are pretty critical. Funny how things don't turn out how you expect.