The case for mortgage rate cuts at profitable banks is rock-solid
Published 24/04/2015 | 02:30
There is no such thing as a free lunch. It applies to the discussion of what interest rates banks charge their customers and whether the Government should oblige the banks it owns to cut variable-rate mortgages.
Because everyone has paid for the folly of the banks via the State's multiple support measures over the years, everyone must gain from the payback. Payback will come when the State sells its (considerable) stakes in the banking system. Maximizing that payback must be the top priority.
Forcing the banks to cut mortgage rates would eat into the profits of those institutions which are back in the black. It would make those still in the red even more unprofitable. Any business that is making meagre profits is worth less than one making healthy profits. A loss-making business is worth even less. This means that cutting rates would benefit those with mortgages, but the cost would be borne by the wider taxpayer (because the value of their stake in the banking system would be reduced).