Posts Tagged ‘interest rates’

Bank-rupture

Friday, December 16th, 2011

It hasn’t been a particularly good year for banks across the globe.

Many are still being downgraded by credit ratings agencies. Standard & Poor’s, addressed in the last post here, upset leading European figures when it issued a threat of widespread sovereign downgrades on the eve of the European summit.

Many banks and governments alike are struggling to raise funds or to find manageable rates at which to borrow. Those that can, on the other hand, are exploiting every drop of political advantage they can muster.

Many banks are commiting various kinds of atrocities. Many are simply finding ways – even unwittingly – to frustrate their customers.

Scandal-Struck

A number of UK banks have been caught up in scandals involving the elderly. As reported on our sister blog in the UK, a succession of banks have been caught and fined for mis-selling risky investment products to vulnerable consumers. Pensioners of 83 years on average were pressured into investing six-figure sums of their inheritence into long-term risk-heavy products, often when they were not even expected to survive the investment term. Collectively, banks have faced compensation payments approaching £150 million ($233 million).

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Concerns Mount for Australian Banks

Friday, December 2nd, 2011

Consumers might have been forgiven for thinking that a timely boost was set to come their way in time for Christmas.

It is widely predicted that central interest rates, which had remained untouched since April 2009, will fall for the second consecutive month when the Federal Bank’s committee convenes next week for the final time in 2011.

But the untimely downgrading of Australian banks by credit ratings agencies this week has put a new complexion on the immediate forecast for bank funding, irrespective of whether a central rate cut is announced or not. Consumers are set to lose out when they may have expected to benefit.

Downgrading

Standard & Poor’s have downgraded a number of major banks worldwide, including Barclays, HSBC, Goldman Sachs, UBS in Switzerland and the Bank of America. In Australia, the Commonwealth Bank, ANZ, National Australia Bank and Westpac all fell by one grade to AA[-], the agency’s fourth-highest rating. Macquarie Group was cut by two levels to BBB, a grade which anticipates a level of risk from adverse economic conditions.

What these reductions do is heighten insecurity for banks to lend to one another. This, in turn, raises the cost of lending as banks insure themselves from that elevated level of risk.

Such costs will no doubt be absorbed by consumers through less competitive savings and loan rates. A central interest rate cut may prove welcome only insofar as it prevents loan rates from rising.

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First test for mortgage exit fee legislation

Friday, November 4th, 2011

The ban on mortgage exit fees introduced in July have been making their first impact this week, following the 0.25% interest rate cut made by the Reserve Bank.

All major lenders have been compelled to respond in the knowledge that home loan holders are now able to walk away from any home loan deal without incurring financial penalties.

November’s interest rate cut from 4.75% to 4.5%, the first cut in 2 ½ years, has provided the first real pretext for banks to respond amid concerns that, under the new legislation, loan holders could easily defect to banks offering better deals.

Were the full 0.25% cut to be passed on to consumers, the average standard variable mortgage rate would be falling from 7.79% to 7.54%, saving roughly $50 per month on an average mortgage.

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