Britain's biggest banks have failed to pass on higher savings rates to customers, despite repeatedly increasing costs for mortgage customers.
That strikes us as blindingly obvious. Perhaps that’s just because we actually understand such things.
Banks live off the interest rate margin. The gap between what they charge to those who borrow from them and the amount they pay out to those who lend to them - or deposit with them. It’s entirely a commonplace that as interest rates in general have been rising recently then that rate margin has been expanding. It’s in literally every single one of bank financial reports and all commentary upon them.
The reason why is that the artificially low rates of the past decade and a half compressed those margins. On the very simple grounds that few are willing to deposit at a negative interest rate. Yes, such did exist in some places these past few years but here in the UK deposit rates tended not to actually go negative - they stuck at 0%. But of course lending rates dropped like a stone, those margins were compressed.
This is all a result of QE and as QE is unwound therefore those margins are increasing again. Back to what they were in fact. Shrug, seems simple enough to us. This is all a part of a return to normality. So, quite why the complaints about it we’re not sure.
But then we get this:
In its letter to MPs, the FCA said that its new Consumer Duty rules will “require firms to be able to justify and explain the rationale for the speed with, and degree to which, they make changes to their various savings rates”. The new rules take effect on July 31.
Firms operating in an open - yes there are new banks, there are new places to make deposits - competitive and free market now have to justify their pricing decisions to the bureaucracy? No, that strikes us as being very silly indeed.
If there are concerns about the possession of market power allowing non-market prices to be set then change the amount of competition so that the market power doesn’t exist. If that problem does exist then that should be done anyway. But having to explain prices to the clipboard wielders is to give those bureaucrats the pricing power themselves. That’s what’s really meant by “justify” here, that banks will have to change their prices at the whim of the civil service.
No, that didn’t work in the Soviet Union nor has such price setting ever worked anywhere.
If the analysis is that market power exists allowing non-competitive pricing then change the market structure so there is no market power. Anything else is very, grossly even, silly indeed.