An analyst who predicted large banks would begin to charge institutional investors interest on their deposits says that the trend will likely trickle down to retail banking.

Earlier in August, the Bank of New York Mellon sent a letter to institutional depositors informing them that the bank would begin to charge fees on deposits above $50 million.

And Dan Geller, executive vice president at Market Rates Insight in St. Anselmo, Calif., believes the trend will spread to retail banking as well.

Issues that would fuel the trend included the fact that banks (and credit unions) pay to insure their deposits with the FDIC and the NCUSIF and the price for liquidity is likely to continue to fall as the economic slump continues.

Geller noted that the Riksbank, Sweden's central bank, lowered its fund rate to -0.25% in 2009 in an effort to reduce the costs of liquidity to banks to zero.

Faced with free liquidity, Geller pointed out, “Why would any bank opt to raise money in the retail market and pay for it?”

He said that the Bank of England and the Federal Reserve are both watching the Swedish experiment.

“Would consumers be willing to pay 25 basis points to insure their deposits?” Geller asked. “Normally, no. But these are not normal times.”

In normal times, investors and consumers make money management decisions based on a ratio that is roughly 80% greed and 20% fear, Geller said.

But in troubled economic times, the ratio is reversed and consumers and investors begin to make decisions predominately according to fear. These fears, Geller suggested, would lead some consumers to pay for insurance protection for their assets.

Instant Insights /

No Interest in Cash: Analyst Predicts Retail Depositors Will Pay

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