We find this really very amusing

Britain’s biggest banks are facing a deadline to repay more than £100bn of pandemic-era loans, which experts say could benefit savers as banks and building societies compete for customers with attractive rates in a “messy” dash for cash.

More than 70 lenders ranging from high street banks and building societies such as HSBC and Nationwide to digital and specialist lenders such as Starling Bank and Aldermore collectively borrowed £193bn from the Bank of England as part of an emergency programme rolled out in the early days of the Covid-19 pandemic in 2020.

It’s really not that long ago that the shrieking was that banks were not increasing deposit rates at the same speed they were increasing lending rates. This made their net interest margin blow out - evident in the accounts and profits - and something must be done. Varied calls were made from increased taxation to someone really must do something - set prices maybe.

All of this when all along it was actually the government causing the problem.

For while there is that Modern Monetary Theory insistence that banks don’t lend out deposits that’s not, actually, usefully true. For banks must have the deposits to finance such loans. And, if they’re getting those deposits, nice and cheap, from the Bank of England therefore they don’t need to up the price they offer to other depositors. Thus the increasing net interest margin. Because they were getting cheap money and thus didn’t need to face full market forces.

The absence of this market aberration will indeed increase the rates on offer to depositors. Good.

And, of course, that this is happening is that very proof that the MMT contention is wrong. Because banks must finance a loan with deposits the effect is that banks do indeed lend out their deposit base. As we can see from deposit rates rising when cheap deposits disappear.

Tim Worstall