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Aspiring Lawyers - Interviews & Vacation Schemes
Commercial Awareness Discussion
Open Discussion: Interest Rates, Mortgages, Savings Rates, and the Banking Industry
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<blockquote data-quote="Jake Rickman" data-source="post: 145225" data-attributes="member: 8521"><p>I think this is a strong attempt!</p><p></p><p>I like how you applied it to law firms. This is good and indicative of the sort of approach to be encouraged more generally. </p><p></p><p>In an interview setting, you may find that your interviewer follows up on certain submissions with counterpoints. For instance, you say that increase in interest rates may hit overall profits. Don't be surprised if an interviewer asks you to account for the fact that increase interest rates in the short-term ought to increase profits, especially if banks are not increasing the rate at which they pay savers banking with them. (E.g., if in 2021, banks offer commercial and retail savers 1% in annual interest rates to bank with them and charge borrowers 3% p.a. for loans, banks obtain a 2% spread, which they collect as profit. But in 2023, if banks still offer 1% to savers but charge 8% to borrowers, the spread is now 7%, which is nearly four times more profit). </p><p></p><p>But I think you would be right to point out that (as you seem to be implying here) increased rates across the board will lead to a net slowdown of borrowing activity, which, when combined with increased default rates, may offset any short-term profits banks obtain from increased spreads between what they offer savers and what they charge borrowers.</p></blockquote><p></p>
[QUOTE="Jake Rickman, post: 145225, member: 8521"] I think this is a strong attempt! I like how you applied it to law firms. This is good and indicative of the sort of approach to be encouraged more generally. In an interview setting, you may find that your interviewer follows up on certain submissions with counterpoints. For instance, you say that increase in interest rates may hit overall profits. Don't be surprised if an interviewer asks you to account for the fact that increase interest rates in the short-term ought to increase profits, especially if banks are not increasing the rate at which they pay savers banking with them. (E.g., if in 2021, banks offer commercial and retail savers 1% in annual interest rates to bank with them and charge borrowers 3% p.a. for loans, banks obtain a 2% spread, which they collect as profit. But in 2023, if banks still offer 1% to savers but charge 8% to borrowers, the spread is now 7%, which is nearly four times more profit). But I think you would be right to point out that (as you seem to be implying here) increased rates across the board will lead to a net slowdown of borrowing activity, which, when combined with increased default rates, may offset any short-term profits banks obtain from increased spreads between what they offer savers and what they charge borrowers. [/QUOTE]
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Aspiring Lawyers - Interviews & Vacation Schemes
Commercial Awareness Discussion
Open Discussion: Interest Rates, Mortgages, Savings Rates, and the Banking Industry
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