The Bank of Spain plans to put limits on high-yield deposits offered by Spanish banks in an attempt to end a fierce deposit war for gaining cash investments from customers while trying to get financing from foreign markets at the same time. The banks are offering between 1.75% and 4% for one-year certificates of deposit and 2.75% for two year deposits.
These requirements from the BOS make sense and should nix the gradual deterioration in earnings that the banks have suffered recently after chasing liquidity instead of profits. Some banks like Popular and Sabadell have accepted the BOS's proposal readily, while others such as CaixaBank and Santander are preparing their newest interest rate offerings.
Discounting the fact that the five biggest Spanish banks will follow the Bank of Spain's rules, it remains to be seen what road Bankinter will take. This bank's deposit interest rates have reached 3.9% on one-year cash deposits. In order to comply with the BOS recommendation, Luis María Linde's bank will need to spread its focus to more sophisticated financial products in order to avoid creating assymetries in the market.
Given that a profit cap cannot be set, because that could be interpreted as an official intervention, the Bank of Spain will have to create penalties another way: increasing capital requirements progressively for the banks that exceed their interest rate recommendations. This will begin a new stage of investing in other more profitable products such as Treasuries.
