In 2008, they were branded public enemies for eviscerating billions of dollars and tanking the global economy.

Now, bankers in many parts of the world are back in the hot seat. This time, though, they’re being blamed for making too much money instead of losing it.

As interest rates soar on seemingly everything except deposits, banks are scoring big profits on the widening gap between what they charge borrowers and pay to savers. That’s attracting the ire of politicians from London to Seoul at a time when rampant inflation is stoking cost-of-living crises and forcing central banks to constrict economic growth.

While the backlash has yet to approach 2008 crisis levels — in part because deposit rates almost always move up slowly at this stage of the economic cycle — there are signs political and regulatory pressure is starting to have an impact.

In Australia, three of the nation’s big four banks increased key deposits rates by a bigger-than-usual amount within two days of the nation’s Treasurer calling for an investigation into the deposit-lending rate gap. South Korea’s financial regulator has vowed to examine bank interest rates and banker bonuses, and President Yoon Suk Yeol this month criticized lenders for having what it called a “money feast.” In London, there’s talk of a windfall tax on the industry.

“What we are calling out across the banks is they had been very quick to increase their mortgage lending rates, but deposit rates have lagged behind and bank margins are holding up,” Reserve Bank of New Zealand Governor Adrian Orr said at a press conference in Wellington last week. “High deposit rates are a critical part to encourage savings, which takes inflation pressure out of the economy.”

The experience of bank customers in Indonesia offers an extreme example of their plight. Some loan rates there are 4.75% more than the policy rate of 5.75%. One lender has a spread of as much as 11.99%, spurring calls for a reduction from President Joko Widodo and the monetary authority.

Meantime, Australian Treasurer Jim Chalmers this month asked the consumer watchdog to investigate the lending-deposit rate gap issue and report back by December. Prime Minister Anthony Albanese this weekend described it as “completely unacceptable.” Two of the nation’s big four banks offer an interest rate on online savings accounts of just 0.85%. That compares with the country’s benchmark interest rate of 3.35% and a variable home loan rate of about 5%.

Widening Gap
Sally Tindall, research director for comparison site RateCity in Sydney, said the gap between the highest and lowest savings rates continues to widen, with customers needing to be vigilant to get the best return.

“There’s a whole lot of people out there that probably just aren’t aware that their bank is fleecing them in terms of a competitive savings rate,” she said. “You could quadruple your rate within your own bank.”

Meantime, British banks including Lloyds Banking Group Plc, HSBC Holdings Plc and NatWest Group Plc came under fire this month from lawmakers for failing to pass on the rapid rate rises by the Bank of England over the past year to customers’ savings accounts. Interest rates on instant access savings accounts start at about 0.55%. The Bank of England’s base rate is 4%.

While savers may be frustrated, investors say it’s typical behavior from bank bosses during rising interest rate cycles.

“For thousands of years, when rates are rising banks have been very fast to pass that on to borrowers, but very slow to pass those increases on to depositors,” said Hugh Dive, chief investment officer at Atlas Funds Management in Sydney.

Dive argues that there is little incentive for banks to offer good rates to attract deposits as they are awash with cash due to the savings customers built up during the pandemic.

Customer Loyalty
Still, by not sharing higher interest rates with depositors, banks are missing an opportunity to generate lasting good will with customers that would produce a longer term benefit, according to Mark Williams, a finance professor at Boston University.

“Doing so would help create greater customer loyalty and could foster greater overall profitability as banks attract more customers through more favorable rates,” he said.

For savers in the US, there are signs of improvement. Goldman Sachs Group Inc.’s popular Marcus accounts now offer 3.75%, up from just 0.5% a year ago. Rivals Barclays Plc and Ally Bank are also competing for customers, currently offering 3.6% and 3.4%, respectively. Still, the average interest rate on a deposit savings account is 0.35%.

Build Resilience
The political impetus will get stronger and banks will face increasing scrutiny, according to John Storey, head of Australian bank equities research at UBS Group AG.

“I just think in a capitalist type of system, it’s unfair because the banks clearly had to absorb the drop in interest rates and you saw that in terms of their profitability over the last few years,” Storey said. “Arguably, you’d want to see them be more profitable as rates go up because it gives them the opportunity to build capital, makes them stronger, creates that balance sheet resilience.”

Atlas Funds Management’s Dive said a big part of the expansion in banks’ net interest margins — the key gauge of profitability between lending and deposit rates — is the accompanying low level of bad debts. He expects that to change as customers come under more financial pressure this year from inflation and falling house prices.

Spanish Tax
In Spain, banks have been reeling since the government last year said it would slap them with a windfall tax as interest rates soared, with the aim of raising €3 billion ($3.2 billion) over two years.

With markets pricing peak rates are still a ways off, it’s an issue likely to attract more back and forth between banks and regulators. In the UK, Lloyds — the biggest mortgage lender — defended itself against the criticism this month, with Chief Executive Officer Charlie Nunn telling Bloomberg TV “we’ve been very focused on the savings market.”

“Banks might be enjoying this profitability boost for now but probably at the cost of losing more depositors” down the line, said Angela Gallo, senior lecturer in finance at Bayes Business School in London.

This article was provided by Bloomberg News.