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Why are bank profit margins widening?

The last few weeks has seen a widening of bank profit margins in both the mortgage, loan and savings sectors of the market. While this has caused alarm for many UK taxpayers, savers and borrowers it is worth considering how and why these margins have widened over the last few weeks. In essence it is all down to turnover and risk because even though many would have you believe otherwise there are still substantial risks in lending money for homes or personal use in the current economic climate.

A profit margin of 1% with little risk may well be acceptable to many banks in "normal" economic conditions but in situations such as today, where risks have increased even though the cost of borrowing has gone down, it seems obvious as to why banks would look for further profit margin. Competition on the smaller profit margins has now reduced substantially which has released many of the more competitive financial institutions to increase their own profit margins without risking loss of market share. This is not a situation which can be blamed upon any one institution as it is literally a step change in the industry which has now come round to thinking that increased risk means increased potential profits.

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