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Angela Knight: 'Banks can't afford to help borrowers'
5 Dec 2008Angel Knight: Chief executive, British Bankers' Association
Borrowers have been calling for lower interest rates for some time; now, not surprisingly, savers are starting to shout too. This encapsulates one of the dilemmas of the current situation: what seems right for one group is wrong for another.
In the UK we owe more per person than most of our competitor countries. Yet all the pressure and the fiscal stimulus package is not to persuade us all to cut back, but rather for banks to continue to lend, so that we continue to spend.
In fact, responsible lending to individuals and viable businesses is still taking place, despite perceptions to the contrary. Large numbers of re-mortgages are now being granted each month - more than 50,000 in October.
But the cost of funds to lenders and the rates they charge to borrowers depend on a range of factors, of which base rate is one.
Banks used to be able to keep the price of credit down by packaging up debt and selling it on, through the well-tried and tested securitisation process. This was efficient, effective and - as long as the loans were being repaid - provided a reliable stream of income. But when the securitisation market became infected by exposure to defaulting American sub-prime mortgages, a prime source of providing funding and spreading risk dried up.
The money markets contracted too and as a result, banks have had to adjust to higher costs of funding, and a greater than normal spread between the Bank of England's base rate and Libor, which is a good indication of what really is the rate a bank has to pay.
They have had to make other adjustments as well, to cater for the likelihood of higher arrears and also the need to recapitalise. And, for those receiving an injection of capital from Government, there are further costs and constraints - that capital does not come cheap.
Meanwhile, the mortgage arrears relief package should provide some welcome certainty to those who fear losing their jobs in this downturn. To be quite clear, though, repossession benefits no one and the banks have made commitments to their customers - and to the Government - only to pursue repossession as an absolute last resort.
Reader views (3)
Arthur, it does not matter who is elected. The banks cannot dig a deeper hole by lending even more money to people already in debt, no matter what the cost of debt. Banks don't lend their own money or Brown's, they go into the capital markets to borrow and then lend, in the hope that they will receive a return they can make a profit on and still give a profit to the capital markets.
With interest rates low and the pound falling through the floor, who would lend to our banks?
Probably we will have to abandon sterling and enter the euro, but Brown has now increased the Public Borrowing Deficit beyond the EU levels that even the prolifigate French, Italians and Germans would balk at s even that may have to be put on hold.
Angela Knight may have links to a failed government, but in describing the hopelessness of this failed government, she is correct. Brown is running around like a headless chicken with one hysterical plan after another. It may look good in the headlines, but without the financial markets backing him, it is doomed to failure.
- Stephen Rothbart, Prague, Czech Republic, 05/12/2008 15:00
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Presumably she's told Gordon Brown this ?
- Peter Haldane, London, 05/12/2008 13:42
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Angela Knight was a Minister in John Major's Government and she is a stark reminder of the No-can-do style of the Major days. I can remember PMQ's in Major's days when the response was always that it was somebody elses fault and there was nothing he could do about it. Can't wait for Camoron to be elected.
- Arthur Atkins, uxbridge UK, 05/12/2008 13:04
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