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Rip-off banks failing to help business

Rip off banks have never been able to borrow money so cheaply but are still pushing up rates for business borrowers.

The London Interbank Offer Rate (LIBOR) is the wholesale interest rate that banks and financial institutions set for lending money to each other.

The rate has fallen to the lowest ever since records started in 1986 – just 0.99%. But banks are accused of looking after themselves rather than their customers. Liberal Democrat Treasury spokesman Vince Cable said: “I do not accept that it makes sense for nationalised and semi-nationalised banks to build up capital reserves. There is no risk they will fail because they are owned by the taxpayer. Their primary requirement is to support the economy through lending.”

Mick McAteer, head of the Financial Inclusion Centre think tank, said: “Banks have been using the cuts in the Bank of England rate to increase their revenues by billions.

“There is a basic lack of competition and they have a stranglehold.”

The LIBOR rate has steadily dropped over recent months as City investors feel the economy will stay in deflation for some time, with the Bank of England keeping the base rate at 0.5% into next year.

In March, three-month Libor was above 2%. Now has fallen from 1.01 to 0.99%.

According to the latest figures released by the British Bankers Association this week, high street banks' lending to small businesses rose by £153 million in May and deposits increased by £250 million.

Over 45,000 new small business banking relationships were established in the month.

Commenting on the data, BBA statistics director, David Dooks, said: "The small business sector saw another monthly increase in its borrowing from the high street banks in May, while reduced trading activities and greater control of liquidity were reflected in increased deposits and little-changed overdraft levels. Through the economic downturn, banks are working to support small businesses and more than 45,000 new banking relationships were opened in May."

The BBA has made no comment about banks failing to pass on LIBOR cuts.


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