Just heard Robert Peston
Just heard Robert Peston commenting on the BBC on Lloyds Bank’s annual report. Here’s the matter-of-fact way he takes it for granted that banks are financial intermediaries that borrow at one rate and lend at a higher one, and how they can only lend what they have got the funds for, and how their profits are squeezed if they find these harder to get:
Quote:
Perhaps the most striking trend is that what’s called the interest margin – the difference between the interest Lloyds charges for loans and what it pays out in interest – has shrunk and will shrink again this year. The interest margin fell from 2.21% to 2.07% and is expected to fall by a similar amount in 2012.One of the main reasons for this income squeeze is the rising cost for banks of borrowing money on wholesale markets, or from other financial institutions, at a time when what banks can charge for loans to customers remains under pressure – partly because central banks, and in its case the Bank of England, are keeping official rates at record lows, and partly because the demand for credit is subdued.Lloyds is becoming less dependent on these less reliable wholesale sources of funding – as part of a strategic effort to make itself safer. And there has been considerable progress in that regard: its more dependable retail deposits represent 62% of all its funding today, compared with 56% a year ago.But the price of wholesale funds is still a big influence on Lloyds’ profits.
So much for those who think that banks can create money to lend out of thin air.