Banks accused of 'profiteering' after Bank of England report

The Bank says cheaper borrowing costs are not being passed on to customers. Should we be angry?

by James Taylor
Last Updated: 05 Mar 2015
More bank-related outrage this morning, after the Bank of England's latest quarterly bulletin suggested banks are making 'excessive' profits from loans and mortgages - and that their 'mark-up' had actually increased since the financial crisis, despite a fall in their own cost of borrowing going down. This, said Treasury spokesman Lord Oakeshott, was nothing more than 'profiteering'. On the other hand, the Bank also points out that these profits are helping to rebuild the banks' battered sheets. So perhaps we should be careful what we wish for...

The Bank's report coincides neatly with the latest figures from the Council of Mortgage Lenders, which reports that UK mortgage lending hit a 10-year low in August. And since a recent survey suggested that homeowners are now forking out £1,700 a year more for a fixed-rate mortgage than they were before the crisis, perhaps that's not surprising. That's despite the fact that since the crash, the Bank's own interest rate has dropped to a record low of 0.5% - meaning it's cheaper for banks to borrow money than ever before. Yet although interest rates have come down a bit - both for mortgages and other loans - the Bank reckons that lenders are actually making fatter profits than they before the crisis.

Naturally, this has gone down like a lead balloon with the politicians, who are very rarely slow to criticise the banks about not making credit available to business and personal customers in sufficient quantities. But the Bank itself was a lot more circumspect; it recognised that higher profits means the banks have more capital, which ultimately makes them less likely to fall over and more likely to lend - desirable outcomes both.

Nonetheless, these aren't the kind of headlines the banking sector will have wanted to wake up to in the week that Sir John Vickers makes his first statement about the remit and direction of the Government's banking commission. He's expected to spend some time looking at competition on the high street - so more talk of them ripping off customers isn't exactly what the doctor ordered...

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