Downing Street Says » Recapitalisation Programme/Interest Rates

Asked what Yvette Cooper had meant when she talked today about enforcing agreements with recapitalised banks, the PMS said that the banks had made commitments, we expected those commitments to be honoured and we would continue to monitor the situation. Lloyds, who took part in the recapitalisation programme, had released a statement saying that they would pass on the interest rate reduction in full.

Asked if the agreements included a commitment to reduce interest rates, the PMS said that the commitment was in the public domain as it was a public document; from memory the commitment was that banks would ensure the availability of lending at 2007 levels at competitive prices.

Asked repeatedly if the Government expected other banks to do the same as Lloyds, the PMS said that he was not going to make specific comments about the specific pricing of individual mortgage products in every single bank. Yvette Cooper had made clear that it was critical that banks passed the interest rate cut on to businesses and consumers right across the country because we wanted to see the benefits passed on to people.

Asked if the PMS was implying that in a year s time tax would be lower than it is today, the PMS said that he was not implying anything at all, but stating, as a matter of fact, that we had already cut taxes this year. Issues for future years were for the Chancellor and the PBR/Budget. The key point was that this was now becoming an accepted mainstream view across the developed world. Even countries like Germany, which traditionally took a different approach to the use of fiscal policy, had felt it necessary to introduce a fiscal stimulus plan. We were seeing an emerging consensus that a temporary increase in borrowing in order to maintain public spending and support for the economy was the right and sensible thing to do at this time.

Asked about the reaction from other banks, the PMS said that we should wait as we had not yet seen the full reaction.

Asked if the Prime Minister supported the view held by some other MPS that all banks should pass on the interest rate reduction to their customers in full, the PMS said yes.

Asked if the Government would look at taking steps towards ensuring banks did pass on the interest rate reduction, the PMS said that when there was an interest rate reduction of this magnitude, the public felt they should see the benefit of that. Banks were commercial organisations, but the Government had taken significant action in order to ensure that banks customers could benefit from both the lending decisions, and lower interest rates from banks. We would expect banks to now play their part and ensure that customers saw some benefit.

Asked if banks were more likely to pass the interest rate reduction on as a result of the recapitalisation programme, the PMS said that the recapitalisation programme had strengthened the banks, which was its objective. The other objective was to try to free up the inter-bank money market. The intention of the recapitalisation programme was to ensure that customers could benefit from bank lending.

Put that the relation between recapitalised banks and the Government had been described as arm s length , the PMS said that it was an arm s length relationship and that was why the Treasury had set up a new arm s length body to manage their share holdings. The banks made commitments at the time of recapitalisation and the public would expect those commitments to be met.

Asked if the Government had told the BoE to cut interest rates so dramatically, the PMS said no; the banks were independent and made their own decisions.

Put that the PMS had implied that the Government was behind the decision, the PMS said that he didn t imply any such thing.

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» Thursday, November 6, 2008

Recapitalisation Programme/Interest Rates

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