As a result, the interest rate for 12 month fixed deposits has reached 3.9 .

Under the current system, the fixed differentials between interest rates on deposits and those on loans translate into monopolistic profits for commercial banks.

Second, China s central bank still controls interest rates by enforcing a roughly three percentage point spread between deposit rates and lending rates.

When the economic recovery begins to accelerate, commercial banks will want to use the large volume of reserves that the Fed has created to make loans to businesses and consumers.

The interest rate on these totally safe and liquid deposits induced the banks to maintain excess reserves at the Fed instead of lending and creating deposits to absorb the increased reserves, as they would have done before 2008.

Likewise, increasing the interest rates paid on bank deposits would enable savings to decline without loss of income.

Low interest rates on deposits encourage savers, especially households, to invest in fixed assets, rather than keep their money in banks.

But structured deposits for example, deposits whose rate of return is linked to the performance of the New York Stock Exchange are becoming increasingly popular.

In the last month alone, Australia, India, Mexico, and others have cut interest rates. China has reduced reserve requirements on banks.

In 2012, the People s Bank of China allowed commercial banks to float interest rates on deposits upward by 10 from the benchmark, and on bank loans downward by 20 .

So, if the PBOC sets the interest rate on one year deposits at 3 , commercial banks can offer depositors a rate as high as 3.3 .

It created federal insurance for bank deposits.

Glass, for his part, opposed deposit insurance.

And, in the United States, where inflation exceeds 2 , the Federal Reserve s benchmark federal funds rate remains at an historic low of 0 0.25 .

Italy and Spain would then be able to refinance their debt at close to the ECB s deposit rate, which is currently 1 on mandatory reserves and 25 basis points on excess reserve accounts.

In October, the People s Bank of China, responding to the twin threats of inflation and asset bubbles, raised its one year deposit and lending rates by 25 basis points, to 2.5 and 5.56 , respectively the first increases since 2007.

After flirting with disaster last July, interest rate spreads for eurozone bonds have generally been subdued, and financial segmentation has been slowly reversed (that is, at least before European officials embarked on the controversial path of trying to impose losses on guaranteed bank deposits in Cyprus).

The EU directive that stipulates the protection of bank deposits up to 100,000 does not provide a European guarantee it only requires member states to create a deposit insurance system at the national level.

But their funding costs are not zero.

It means establishing a common deposit insurance scheme and a mechanism for closing down insolvent financial institutions.

Leaving deposit insurance exclusively at the national level is no longer an option.

With more deposits at their disposure and a more flexible interest rate policy, banks would be able to price risks more easily and thus lend more to SMEs.

Increased uncertainty concerning the safety of deposits will push up interest rates and deepen Europe s recession, and may also trigger capital outflows from the eurozone s weaker peripheral economies to the core.

Banks and other financial firms borrow short increasingly in recent years from the commercial securities market, not deposits and lend long at higher interest rates, taking on both credit risk (of default) and interest rate risk.

Banks are obliged to hold reserves, maintain capital, and pay deposit insurance to ensure that they can honor their deposits.

Of course, the Germans have reluctantly come to accept the necessity of a banking union that includes common deposit insurance.

As for the official banking sector, liberalization of interest rates on deposits, scheduled for 2016, will reduce financial repression and implicit investment subsidies. That, in turn, should help to rebalance the demand side of the growth pattern.

Small town bankers throughout the country wanted government guaranteed deposit insurance, while stronger big city banks feared that government deposit insurance would put them at a competitive disadvantage.

But they have not eschewed the use of variable capital and reserve requirements, loan to deposit ratios, and thresholds for minimum deposits and maximum leverage as controls on property lending.

Meanwhile, developing countries are moving in the opposite direction. In October, the People s Bank of China, responding to the twin threats of inflation and asset bubbles, raised its one year deposit and lending rates by 25 basis points, to 2.5 and 5.56 , respectively the first increases since 2007.

Finally, central banks still stand ready to intervene to prevent bank runs.

Finally, the revolt of Cyprus s small savers highlighted the need for a credible system of deposit insurance.

A higher foreign currency LDR will mean tighter restrictions on long renminbi positions.

Central banks respond to lowered demand by reducing interest rates and to higher expected inflation by raising interest rates.

Nor can it be used to establish a European deposit protection scheme, which is arguably the most urgent requirement, to stem the outflow of deposits from southern European banks.

Nor would a run on savings deposits occur, given the official guarantees that they remain unaffected by a bank s insolvency.

But, again, these disclosures did not speak to issues like the desirability of branching or deposit insurance.

It needs to provide an expanded form of deposit insurance during this time of turmoil, so that there are no more Northern Rock style bank runs.

The term includes checking, saving and time deposit accounts.

Indeed, the proposal amounted to a rupture with the near universal agreement that small depositors should be considered sacrosanct.

By quantity of money, experts normally mean M3, a broad measure that includes bank deposits.

The American Bankers Association, worried about the fees that banks would be obliged to pay, vehemently opposed deposit insurance.

The organization earns interest income primarily from the cash and term deposit balances it maintains throughout the year.

For example, the classical prohibition on usury was softened from a ban on charging interest on all loans to a ban on charging interest on loans for which the lender had no alternative use, i.e., for charging interest on hoards or cash balances.

Interest rates on government bonds were racing upward.