Apart from the cost of wholesale finance which we have blogged about earlier there is another factor coming into play. The UK Government appears to be placing restrictions on state owned banks and influencing lending criteria at other banks in which the tax payer has a large stake.
One clear example is Northern Rock who last week were instructed not to appear in the top 3 for “best buy mortgages” until the end of 2011. Further Northern Rock was told it must also keep its savings balances below £20billion. This move appears to be to “ease competition” in the market and avoid other banks complaining that Northern Rock is benefiting from being “state owned”.
Another example is Lloyds TSB who have been making deals less attractive in what appears to be an effort to “lose customers”.
Royal Bank of Scotland is yet another example, last week it was reported that they were scaling back on mortgage lending. RBoS have also increased some of the rates on their mortgage products, one example being the 5 year fixed mortgage which at the time of writing had increased from 5.99% to 6.39%.
A comment attributed one senior MP was “… pressure from Europe means they should not have competitive advantage” and that banks should not provide financing at rates which are “out of line with the rest of the market”.
Overall, whilst it is clear that the health of the banking system needs to be improved, it also raises some questions…..
- If Europe is concerned about competition affecting banks and asking state owned banks to be less competitive, then why are many banks already reporting higher levels of profits and bonus payments?
- Do the non state supported banks really need more help to reduce competition?
