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Banking is heading back to the days of free toasters

By Stephen Mihm

04 May 2023 · 5 min read

Editor's Note

A toaster for your deposit? In an era of rising interest rates, banks are again struggling to attract cash to their coffers, leading to a "bidding war" for deposits, argues Bloomberg's Stephen Mihm.

For years, rock-bottom interest rates gave depositors little incentive to switch banks. But in recent weeks and months, a growing number of banks have had to go the extra mile to retain depositors in an era of rising interest rates. Small banks in particular have had to keep pushing rates higher to hold on to deposits, which are the lifeblood of a bank's loan portfolio.

Previous such bidding wars have sparked anxiety within the industry as well as among regulators. But before anyone comes up with the bright idea of limiting interest rates to protect bank profits, it's worth recalling that earlier, misguided attempts to regulate rates did little to help - and in the long run, led to evasion on a grand scale.

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