The Bank of England has published “Bank funding costs: what are they, what determines them and why do they matter?” This useful primer walks through the basics of bank funding costs using an analogy of water pouring in and out of two sides of a scale.
The article explains what bank funding costs are – and why they are so important – in simple terms. It uses an analogy of two buckets balanced on a set of scales to depict the dynamic nature of bank funding and bank lending.
The paper is available here. A short video works through some scenarios using the ‘buckets on scales’ analogy.