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Banks under pressure to pass on cuts as Libor hits record low
14.08.09
Libor, the rate at which banks lend to one another, has fallen 7.7% in the last week to a record low, piling the pressure on lenders to pass on cuts to borrowers in full. The three-month London interbank offered rate for Sterling has dropped from 0.84875 to 0.78375.
Conditions in the money markets have improved thanks to the cash injection into the economy from the Bank of England, and as its policy-makers kept the base rate at a record low of 0.5%. Libor's decline suggests that confidence has returned to the financial system, with banks becoming less cautious about lending to rivals.
But the big banks have come under fire for failing to respond by reducing the rates they levy on businesses and homeowners — particularly after many of them reported a return to big profits last week.
The spread between Libor and the average interest rate charged on mortgages has widened dramatically in recent months.
Critics say that lenders are taking advantage of the lack of competition in the lending markets to boost profits at the expense of customers. But the British Bankers' Association has attributed the gap to the rising costs of running a bank.
