Inflation, the low-interest rates offered by banks and the fear of a banking crisis continue to fuel a deposit flight towards safer and more profitable securities such as gold or Treasury Bills.

As we have been warning for months, the rise in ECB interest rates has not been reflected in a significant improvement in the remuneration of savings. During the first two months of the year, Spanish bank customers withdrew 18 billion in deposits from their savings accounts in search of a better return on their money.

The rising cost of living due to inflation has led to a loss of purchasing power for many families who have decided to diversify their savings by taking their money out of banks in favour of other products and investments that offer a better return on their money. A fact that largely explains why the demand for precious metals, especially gold, is still booming.

The case of Spain is not unique, the low profitability of bank deposits has been compounded by the fear of a new crisis caused by the bank collapses of recent months, which has led to a deposit flight in many parts of the world. Moreover, if this accelerates because of fears about the safety of deposits, the banks concerned will reduce the assets on their balance sheets, lending less and restricting credit to individuals and businesses.

A globalised deposit flight

The United States is one of the countries that has seen the greatest reduction in deposits, especially to higher-yielding investment funds. After the collapse of Silicon Valley Bank and Signature Bank, Federal Reserve data showed that between 1 and 15 March deposits worth 146 billion euros were withdrawn. A figure that rises to 574 billion euros if one looks at the evolution of the loss of bank deposits over the last year.

The picture is also worrying in the United Kingdom, where news of the collapse of US banks and Credit Suisse caused Britons to withdraw 5.5 billion euros from their bank accounts in March, the largest-ever drain of deposits.

The European Union’s largest economy was not spared from the outflow of deposits. Continuing with data from March, Germany is another country where banks have experienced a significant drain of deposits. Germans withdrew 18 billion euros from their banks, either because of fear of the banking crisis or because they were looking for higher returns in other financial institutions or investment products.

Concern about the safety of money in banks

Not surprisingly, in the midst of the turmoil in the US banking system, 48% of Americans are concerned about the safety of their money in banks. This sentiment, however, is not limited to the United States but is widespread throughout other Western countries whose economies are interconnected to the American giant.

The situation is so serious that the Japanese Finance Minister, Shunichi Suzuki, has announced that at this week’s meeting with the G7 group of nations, measures will be considered to try to stop the flight of bank deposits. In addition, the latest bank failures have called into question the degree of deposit protection. In this regard, the European Commission has adopted an emergency proposal to strengthen existing deposit insurance in the EU, with a particular focus on small and medium-sized banks.

Governments and regulators keep repeating that we do not have to worry about our money and the stability of the financial sector. Yet there seems to be no turning back, the lack of confidence in banks has been accentuated by the domino effect of the banking collapse, and the data shows that people have decided to look for other options in order to protect their savings.

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