Bank of England leads the attack on high street lenders
The Bank of England has today led the charge for high street lenders to release more funds to the consumer and corporate markets with a veiled threat to reduce the interest rate which UK banks receive on their funds held in central bank reserves. When you consider that between HSBC, Royal Bank of Scotland, Barclays, Lloyds bank and Northern Rock, there is over £157 billion held by the Bank of England, an increase from £90.6 billion at the end of 2008, the threat will be noted.
Currently UK clearing banks receive interest on their funds held in the central bank reserves although the Bank of England has today suggested that this interest rate may be cut to make it more attractive for UK clearing banks to lend money to consumers and businesses. This pincer movement, between the UK government and the Bank of England, may or may not have the desired effect of increasing liquidity in the loan market but it does show that the Bank of England is more than capable of acting under its own steam.
There is every chance that this veiled threat will have more of an impact on the UK lending market as there is no doubt that centuries of experience in the money markets has given the Bank of England a reputation which is unmatched around the world.
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