Government controlled banks

Dizzy has gone off one one here, about the government control of banks and how bad an idea that really is. Quite right to.

Some banks did pass on the rate straight away like Lloyds TSB who's deposits are similar to its lending. Others have not, primarily because their deposits don't. They are trying to improve their books by reducing their mortgage books.

Cutting interests rates will also have a severe perverse effect and that is to reduce the amount of savings people put away, possibly making the banks deposits worse.

Having said all that the pound has not tanked badly as a result of the cut in bank interest rates though it is not as stable as I would like. Libor rates have dropped which is good. However what will happen as Dizzy points out, is that banks will just tighten their lending policy. They already have. They now will not lend to people who have nothing or little in the way of a deposit. That is still a constraint on lending and that position will not change until house prices start to rise which in turn will not happen for for some time.