Banks trade off short-term losses on deposits against long-term profits from cross-selling other products to new depositors. This strategy is especially attractive when policy rates are low and future sales are more valuable. Therefore, deposit rates move less than policy rates: banks keep them relatively higher when policy rates fall, and relatively lower when policy rates rise. As returns on other financial assets follow policy rates more closely, this makes deposits relatively less attractive for depositors at higher policy rates. Therefore, policy rate hikes lead to a reduction in deposits, which are the key source of refinancing for bank loans. This cuts loan supply, supporting the transmission of monetary policy.
Nothing contributes so much to the prosperity and happiness of a country as high profits