Liquidity or profitability: How retail investors can shape liquidity risk models in times of high interest rates

The great success of the one-year “Staatsbon” or government bond was caused by the low deposit rates at Belgian banks and the reduction in withholding tax (from 30% to 15%). This forced banks to revise their deposit rates and give up profitability, or to retain the low rates and lose liquidity.

Investor demand for high-interest, fixed-income instruments means that banks need to readjust their risk models and compete with sovereign and private sector alternatives.