Do the banks have any moral obligation to hand on the Bank of England’s base rate cut?

The Nationwide, HBOS, the RBS/NatWest group and our own Northern Rock have announced that they will pass on the full cut of 1.5% to its lenders in December. It seems Darling’s enticements of “coffee and bacon rolls” sufficiently appeased/threatened bank chairmen to help out borrowers and small business owners.

Admittedly, this will help many homeowners struggling to meet their mortgage repayments. It will also help businessmen borrow at more competitive rates. But a cut in the Bank of England’s base rate wont help the banks themselves.

Because banks don’t tend to borrow from the Bank of England, they borrow from other banks. The Libor, although on the way down, is still far higher than 3%. Any liquidity that the Treasury had hoped the Bank of England’s violent rate slashing would produce will not materialise until the rate of lending between banks dips further.

Governmental and retail pressure has seen banks capitulate in their refusal to alter rates offered to customers. Such political posturing epitomises the mess that part nationalisation has produced for all concerned parties. As preference shareholders in the big commercial banks, the Government (and, by extension, us) should like them to make a quick profit and pay us back. But they won’t make a quick profit by lending at unrealistically low rates.

Furthermore, if the easy availability of debt and mortgages the public couldn’t afford were what got us into this pickle, does anyone really expect more cheap lending to help? People on the high street – the same people who will struggle to make their repayments, who may have to close their businesses – need get used to spending and borrowing less.

The banks are trying to save themselves. But in doing so, they just might be teaching us all a valuable fiscal lesson.