Banks stock up with cash

UK banks are still holding onto cash. Most of it is deposited at the Bank of England, which has become the de facto interbank market.

This chart illustrates the credit crunch in terms of cash management within the banking sector. It tracks the ratio of total bank assets to cash. Here, cash comprises of three things; notes and coins held by banks, cash-ratio deposits held at the Bank of England, and bankers balances (also held at the Bank of England).

Prior to August 2007, Banks held one pound of cash for every 120 pounds of assets. Once the crisis took off, the ratio dipped below 100, and then fluctuated just below 100 for a months. After the Lehman bankruptcy, there was panic. The Bank of England flooded the banks with emergency cash, and the ratio dives down to 35.

In recent months, it has recovered slightly, but remains significantly below its pre-crisis level. And as the chart suggests, the UK banking sector is still a long way from stability.