From today's Metro:
HSBC was accused of 'profiteering' yesterday after a senior executive signalled it may not pass on interest rate cuts in full to its customers. The bank's chief operating officer, David Hodgkinson, said there could be 'stickiness' in rates* even if the Bank of England lowered them as expected later this week...
His remarks were seized upon by Liberal Democrat treasury spokesman Vince Cable. He said: 'It is difficult to see the justification for Mr Hodgkinson's comments. When the whole banking industry owes so much to taxpayers for their very survival, any bank will find itself on very thin ice if it is found to be unfairly profiteering from its customers.'
IIRC, HSBC and Barclays were the only two major banks who politely declined the taxpayers' shilling, along with Nationwide Building Society. Is he perhaps confusing 'HBOS' with 'HSBC'? Tut tut.
* Aka 'pushing a piece of string'.
Why Not Cut It From All?
1 hour ago
13 comments:
What do we think: do politicians not understand interest rates or do they think to the public doesn't understand them and so lie away?
I think they genuinely don't understand. The idea that BoE rate cuts magically stimulate the economy is deeply engrained with commentators left, right and centre.
HSBC and Barclays will still denude their client's balance sheets to rebuild there own. It was ever thus. Retail banking in the UK is a de facto (now, after nationalisation perhaps an actual) cartel. Sure, they have 'repriced risk' or to put it another way decided to raise prices to pay for their own underwriting errors. Trouble is they have no idea about the risks of their clients since thgeiur modelling is now so out of whack. I have had our balance sheet criticised by HSBC, which since we are a partnership and I have personal cash, investments and a house with a very low mortgage is just nonsense. I pointed out to the robot manager who said this that at least our balance sheet was analyseable, which her employers was not. Anyway, they are all on a 'get all the cash in where you can from whoever you can' instructions, so raising prices will be part of that.
'Now, hands up at the back there if you can name the two classes of mankind not trusted by anyone?'
'Yes, you in the blue shirt?'
'Quite right. Politicians and bankers.'
'So if the politicians own / control the banks what's likely to happen to the rest of us....?'
'Did someone say "shafted"?
'Quite.'
What's the difference between "fairly profiteering" and "unfairly profiteering"!?!
I thought the credit crisis meant that banks would need to return to their roots by lending profitably and attracting more deposits!
"Unfairly profiteering" is when the banks do it.
"Fairly profiteering" is what UKFI are doing: ‘UK Financial Investments Limited’ (UKFI), which is wholly owned by the Government. Its overarching objectives will be to protect and create value for the taxpayer as shareholder...
You'd think that the major bank which had got itself in least trouble might be viewed as the one to be left alone or even emulated, rather than forcing it to fall in line with the banks which fouled up.
Large credit risk losses tend to indicate that risks were priced too low and margins were too small.
The fact that HSBC is prepared to keep a larger margin is possibly why it didn't need bailing out in the first place.
MW
Maybe my memory isn't what it was but I seem to remember from my economics classes that Keynes identified the "liquidity trap" in which it is impossible for a government to stimulate the economy through interest rate manipulation. In your words this is where the authorities are "pushing on a piece of string". This is an interesting 1999 paper by the latest economics nobel laureate on Japan and the liquidity trap.
You would have thought that economic commentators would have recognised that this is what we're in right now. OTOH I don't expect the serially incompetent at the head of the UK government (and his office boy at No 11) would understand - or, worse, want to understand - what's happening.
The rate cut,if its passed on, saves jobs.
Business with falling revenues cannot afford to pay the banks more for the same or less lending facilities. Rents come a quarter in advance. Wage costs are met monthly/weekly.
So the only short term way of having more in the pocket is if borrowing rates are lower.
You can try putting your prices up in a recession but unless you are a supermarket or energy supplier it is unlikely to work.
look at M+S figs today and see the 5,000 - 10,000 jobs lost tomorrow.
Its not all about stimulating the economy to grow, its also about trying stop the contraction being so bad.
U, I shall have to read that properly to see whether it sheds any light.
BQ, "The rate cut,if its passed on, saves jobs." Agreed, but it's a big IF, that's the point.
"Business with falling revenues cannot afford to pay the banks more for the same or less lending facilities." Again agreed, but you miss the point. It's the contraction of credit to businesses (which does seem rather spiteful) that is the problem (which in turn stems from lack of trust, confidence etc) and NOT because banks have put up interest rates charged to customers.
1/ inflationary interest rate cuts will devalue money.1/ Money is Deferred Barter.
2/ Barter is employment.
3/ Harming bartering harms employment.
You cannot win with inflationary interest rate cuts.
You can only keep the malinvestment in the economy longer.
AC1, that's a bit cryptic, but it's a good way of looking at what happened to Japan when they tried this in the 1990s.
Bill Quango, what happens when interest rates are zero?
More jobs would be created if people lowered their pay expectations and benefits were cut for the work shy.
MW
I agree: it's not the cost of the credit lines which is the vital factor, it's the reduction or absence of those lines.
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