High Street banks have told Alistair Darling they will not pass on any further interest rate cuts to consumers and businesses.
The banks have warned the chancellor they are “not charities”. They said they could not afford further to reduce mortgage payments and interest rates to businesses if, as expected, the Bank of England continued to cut rates as the economy fell deeper into recession.
The tough line from the banks will anger taxpayers, coming just a month after the government injected £37 billion into Royal Bank of Scotland (RBS), HBOS and Lloyds TSB to protect them from the credit crunch. Northern Rock and Bradford & Bingley have already been rescued by the taxpayer.
Most main banks have responded to the 1.5 percentage point cut made by the Bank of England on Thursday. The only two big lenders not to have trimmed their rates are HSBC and Barclays, which both avoided the Treasury-backed bailout.
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Bankers, who were summoned to a meeting at the Treasury on Friday morning, have told Darling that these latest cuts, which took bank rates to a 54-year low at 3%, represented a “line in the sand”.
“Base rates are now so low that our margins are desperately small,” said one bank executive. “This point was made quite clear to the chancellor by several of the executives — we are not charities.”
During the meeting, which was attended by executives of eight major banks, it is understood Darling indicated that the three part-nationalised banks — RBS, HBOS and Lloyds TSB — would be placed under greater pressure to pass on any cuts.