Isn't it the same thing what marketing experts call brand loyalty? Clients tolerate lower deposit rates and higher loan interest rates because they value relations with a particular bank.
I wouldn't call it brand loyalty. I think it is more that switching costs are too high. It is a major hustle to switch to another bank (for one, you have to tell your employer new bank details and setup all your direct debits anew). So people just don't do it until they are absolutely mad at their bank.
Commerzbank pays 0.75% on deposits rain or shine as their post-WFC new normal. And when the ECB cut to zero, they stopped paying any interest, and even had the audacity to ask their customers to pay "negative interest"; I just threw those letters in the trash, and they eventually went away ... but the rates never tracked back up again.
This explains why some banks in the US pay good interest rates on deposits and some do not pay any at all. I wondered how there could be such a spread. Example local credit union pays 4% up to 15K in checking while the big bank in town pays 0.025. It’s because the big bank wants less sensitive clients while the credit union clients are sensitive so it must compete on that basis ever more.
I think there is another factor. Credit Unions typically have lower credit quality than big banks, so their funding costs if they have to borrow from other banks or the Federal Reserve to pay out loans are higher than for JP Morgan and others. The result is that they are willing to pay higher deposit rates as well, so they attract more customers. Even if they pay 4% on deposits, that may still be cheaper than borrowing from other banks at 5%.
Usury
Isn't it the same thing what marketing experts call brand loyalty? Clients tolerate lower deposit rates and higher loan interest rates because they value relations with a particular bank.
I wouldn't call it brand loyalty. I think it is more that switching costs are too high. It is a major hustle to switch to another bank (for one, you have to tell your employer new bank details and setup all your direct debits anew). So people just don't do it until they are absolutely mad at their bank.
Commerzbank pays 0.75% on deposits rain or shine as their post-WFC new normal. And when the ECB cut to zero, they stopped paying any interest, and even had the audacity to ask their customers to pay "negative interest"; I just threw those letters in the trash, and they eventually went away ... but the rates never tracked back up again.
This explains why some banks in the US pay good interest rates on deposits and some do not pay any at all. I wondered how there could be such a spread. Example local credit union pays 4% up to 15K in checking while the big bank in town pays 0.025. It’s because the big bank wants less sensitive clients while the credit union clients are sensitive so it must compete on that basis ever more.
I think there is another factor. Credit Unions typically have lower credit quality than big banks, so their funding costs if they have to borrow from other banks or the Federal Reserve to pay out loans are higher than for JP Morgan and others. The result is that they are willing to pay higher deposit rates as well, so they attract more customers. Even if they pay 4% on deposits, that may still be cheaper than borrowing from other banks at 5%.