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Bank Of England Urged To Punish High-street Lenders

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http://business.timesonline.co.uk/tol/busi...icle6828189.ece

The Bank of England should carry out its threat to penalise high street lenders by cutting the interest it pays on cash held by them in its reserve accounts, The Times monetary policy committee (MPC) recommends.

The plan was mooted last month by Mervyn King, the Bank Governor, as part of efforts to encourage lenders to inject more money into the financial system.

Four of the nine-member panel of economic experts on The Times MPC thought that the Bank should press ahead with the plan.

Professor Charles Goodhart, of the London School of Economics, the most fervent backer of the scheme, said that the cash balances “piled up at the Bank of England†were “socially useless†and that the Bank should impose a negative interest rate on money held by each bank in excess of 2 per cent of their total assets.

HSBC, Royal Bank of Scotland, Barclays, Lloyds and Northern Rock held a total of £157 billion in central bank reserves at June 30, up from £90.6 billion at the end of 2008.

Sushil Wadhwani, a former external member of the Bank’s MPC, Rupert Pennant-Rea, a former Deputy Governor of the Bank of England, and Sir Steve Robson, former Second Permanent Secretary at the Treasury, also lent their backing to the plan.

However, Sir Alan Budd, former chief economic adviser to the Treasury, Martin Weale, director of the National Institute of Economic and Social Research, and Bronwyn Curtis, head of global research at HSBC, said that the Bank should not carry out its threat. Anatole Kaletsky, chief economics commentator at The Times, and Geoffrey Dicks, former chief UK economist at RBS, remained uncommitted.

Otherwise the panel was united in its call for interest rates to be kept unchanged at 0.5 per cent, where they have remained for five consecutive months, and for the Bank’s drive to jump-start the economy with huge injections of newly printed money to be halted for now with burgeoning signs that the recession is coming to an end. Many were surprised by the Bank’s decision last month to pump a fresh £50 billion into the economy to ensure that the recovery continued.

The decision to extend its programme of quantitative easing from £125 billion to £175 billion broke the ceiling set by the Chancellor of £150 billion.

Professor Goodhart said that the Bank’s quantitative easing programme had been “short-circuited by the banks piling up huge deposit balances at the Bank of England rather than using them to buy additional assets or to make loansâ€.

Mr Pennant-Rea said that the Bank should adopt a gradual stance towards cuts in the rate on reserves. “That would mean ... moving in small amounts — several small cuts rather than one big jump to the ideal rate,†he said.

It appears that all our expert economists wish to keep the ponzi system going by more lending to solve a debt crisis.

Can't find any flaws in this logic lets get into more debt and quick.

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better they stay in the reserves rather than out in the wild.

good prospects ARE getting loans...

this pile, if lent...would go to whom and create which bubble?

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better they stay in the reserves rather than out in the wild.

good prospects ARE getting loans...

this pile, if lent...would go to whom and create which bubble?

Scented candles.

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better they stay in the reserves rather than out in the wild.

good prospects ARE getting loans...

this pile, if lent...would go to whom and create which bubble?

Quite; are the banks being cautious or sensible? I suspect they may be sensible because they know there's more trouble out there than the headlines suggest. Then again they got us into this so.....

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http://business.timesonline.co.uk/tol/busi...icle6828189.ece

....Bank should impose a negative interest rate on money held by each bank in excess of 2 per cent of their total assets.

Can't find any flaws in this logic lets get into more debt and quick.

Banks will find the ways around it.

One possible way: surrender surplus-to-requirement banking licenses, get back the impaired assets from UKFI, pool them, mark then up so that total reserves held with BoE are less than 2% of assets.

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better they stay in the reserves rather than out in the wild.

good prospects ARE getting loans...

this pile, if lent...would go to whom and create which bubble?

Excluding tenners and gilts - where exactly are these wilds you are talking of?

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Banks will find the ways around it.

One possible way: surrender surplus-to-requirement banking licenses, get back the impaired assets from UKFI, pool them, mark then up so that total reserves held with BoE are less than 2% of assets.

Just like banks found ways around the BoE base rate.

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Just like banks found ways around the BoE base rate.

On a 2nd thought, if BoE forces banks to mark-to-market their assets, presumably to prevent them from expoliting the above loophole, this could be a positive sign.

Every cloud has a silver lining :P

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