Why a bank might not bother passing on a rate cute.

Banks have been at the epicentre of the financial crisis gripping the world in 2008. The thing that must be understood is that the formation of the leverage (and subsequent deleveraging which is causing the absence of liquidity) took a long time to form and therefore we will not expunge the problems from the monetary system as fast as many may hope.

So it comes as no surprise that several banks are not passing on the ECB rate cuts. It is important watch the language they use in their press releases things such as ‘We are pleased to announce that we will pass on the full rate cut to our existing clients’ should be read as ‘If you have a mortgage with us already you will get the rate cut, but all the new mortgages, or applications in process will not get the same deal’.

Why would a bank not do the same for new clients? On one hand …

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