An analyst who predicted large banks would begin to chargeinstitutional investors interest on their deposits says that thetrend will likely trickle down to retail banking.

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

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

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

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

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

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

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“Would consumers be willing to pay 25 basis points to insuretheir deposits?” Geller asked. “Normally, no. But these arenot normaltimes.”

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

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

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