Interest rates being rigged – what the Parliamentary Banking Commission should be looking into

Since Christmas we have published a number of blogs looking at everyday interest rates in the UK. Long before even the Governor of the Bank of England claims he heard that the big banks were rigging the now famous LIBOR, we were pointing out how the banks were squeezing us all. Savers in the UK were being offered derisory returns, but average mortgage-payers are usually paying over 5%. The difference in the UK is far more stark than in France and Germany, or even in crisis countries like Ireland and Greece.

In the real world,  borrowers in the UK are paying some of the highest interest rates in the developed world. We have highlighted this in previous reports and the chart brings together some most recent comparable figures assembled by all Europe’s central banks and contributed to the ECB Data Warehouse.

We have compared the UK figures here with the Eurozone leaders and some of the countries in distress. The rate for savings is based on deposits that are only tied up for three months and the rate for loans is based on loans for house purchase based on a term of  at least 5 years .  So the savings rate is the one that would be appropriate to new and modest savers, and the housing rate is one of the most used in the UK given how much borrowing (even for business) is based on using houses as security.

This exploitation is really how the bonuses are being paid.

Anyone who looks up the LIBOR on the internet, will find it is usually well within one percent of the Bank of England ‘base rate’. But the interest rates real people get bears no comparison to the record low interest rates the Bank of England claims to be providing us.

The Bank of England has failed the UK. They have let financial practices occur in London, including rigging the LIBOR, that have damaged the world economy, and which would not be allowed in the USA.  Their monetary policy has failed us. We have long had the highest inflation rate in G7 countries despite us having such steep actual interest rates.

As the government’s new banking enquiry gets underway, we are looking to get our project to reform the Bank of England, and make it more representative, back on the road.  Reform of the Bank of England is something none of our political leaders have recognised as part of bringing our financial economy back under control.

This cannot be done by regulation, sealing up the loopholes or re-shuffling the names in the regulatory apparatus. People have rightly said that cultural change is needed. The most far-reaching way of doing this is to democratise banking supervision.

Our central bank is run by a board (‘the court’) appointed by whoever is in government. Seeking to foster some semblence of the bank being representative New Labour started the practice of putting a leading trade union magnate on the court; Dave Prentis, Unison general secretary, is on it now. But New Labour was never otherwise keen to enhance the role of the unions in the economy, as opposed to the role of the very biggest of businesses and the Bank of England, itself.
Women and Scots members would also improve the image  of the bank. If  both could be covered in a single nomination, the gods of diversity and equality would be chuffed.   The woman in question being head of Lloyds TSB in Scotland would even bolster the traditional banking interests. Further reading though confirms she is actually an American – but she would not feel at all out of place: an American who helps run the investment bank Deutsche Bank (after having previously been with Goldman Sachs) is also on the court. Goldman Sachs currently has an ‘old boy’ on the interest rate setting committee too. Lady Rice of Lloyds TSB  also happens to be a director of Scottish & Southern Electricity, one of the Big Six energy utilities that dominate the UK energy market. But she would not be alone in that either, because the Chairman of the parent company of British Gas is also there.

In the US, the central bank is dominated by people from the small local banks with representation weighted towards the regions. This sort of federal model was the basis of the old German central bank; and all the member nations are represented in the European Central Bank – and not forgetting Canada which has regional representatives on the board.

These examples offer food for thought for making maybe a Bank of Britain the voice of the peoples of Britain in finance, rather than the voice of the big interests laying down how things should be to the people… With Scotland possibly becoming independent in the next few years, and there being questions about whether it remains in the Sterling economy, these are issues that have only just begun to appear on the agenda.

 

Andrew Lydon

We have since done a piece on the role of the Bank of England in bringing Austerity government, which can be accessed here.

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