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What is feeding the recovery in the UK banking sector?

Over the last few days we have seen more positive news from the UK banking sector than we have seen over the last three years. Lloyds Bank and Royal Bank of Scotland appear to be moving towards profitability and other banks in the UK are reporting near record profits. So what exactly is feeding this banking frenzy in the UK?

A quick look at savings rates in the UK will show that the difference between the rates paid to savers and the rate charged to customers is greater than it has been for some time. Despite the fact that the money markets are calmer than they have been for a couple of years the rates available for savers are still minimal in many cases. This widening of gross profit margin will not go on forever and many people believe that the return to the boom times for UK banking industry may not last as long as many people would have you believe.

When you also take into account the fact that the vast majority of banks in the UK are still fairly light on liquidity levels, reducing their risk going forward, they will come under enormous pressure to increase liquidity in the short, medium and longer term.

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