Dodging the Hit
Chancellor Alistair Darling wants banks to help easy the credit crunch by passing on rate cuts, but banks will try to resist any weakness to their bottom line.
Historically banks have always been held up as institutions and safe sharemarket investments.
They were a safe haven and immune from financial trouble as they controlled the money. But if this credit crunch has proved anything it is that banks are like any other business.
They are exposed to slowdowns and credit troubles, not only does it increase the levels of bad debt on their book, but it also increases cost with credit markets tightening.
Need we be reminded of the long lines of customers abandoning Northern Rock late last year?
With these conditions there is growing economic pressure not to reduce interest rates to maintain profit margins, even with the base rate in decline.
Darling’s ‘request’ for relief for customers from the banks, will hold little weight with the banks that are seeing their ledgers drained.
Some banks have reduced their interest rate after the Bank of England reduced the interest rate by 0.25 per cent, from 5.25 per cent down to 5 per cent.
But the cost to homebuyers wanting to establish a mortgage has risen, it is the case of giving with one hand and taking with the other.
Darling comments were definitely a warning to banks, after also mentioning the rescue money that the Bank of England and the HM Treasury supplied to stressed banks and financial institutions was a show of goodwill from the government.
But these words are falling on deaf ears as all the attention turns to the US market that shows all the signs of being in a recession, and the banks asking each other how bad this slowdown will hit.
