Cost of borrowing for banks could be increased on permanent basis
March 20, 2008
Banks and financial institutions have been warned that the cost of borrowing on the wholesale markets and via inter-bank lending could be permanently raised, as the global credit crunch continues to cause chaos in the money markets. Financial institutions have been warned that they will not be able to raise money as easily as they have in the past by selling off loans, and will therefore have to keep more loans on their own books, which could drive up the cost of borrowing.
The warning was issues by the Chief Executive of the Financial Services Authority, and comes at a time when the financial markets are suffering in a variety of ways due to the global credit crunch. Many lenders have already had to curb their lending due to increased costs to themselves and increased wariness over defaults, and in addition to tighter lending conditions some have also reduce the number of mortgage products and the type of products that are available.
Consumers are now suffering as a result of the credit crunch due to some lenders scrapping 125% or even 100% mortgages, making things difficult for potential buyers with little or no savings to put down. Many other have increased their lending criteria and are therefore making it difficult for many people – particularly those with damaged credit – to get finance.
The FSA stated that banks needed to look at their business models and make changes to accommodate the changes in the financial markets.
He said: “Banks themselves need to give consideration to how their business models will need to adapt to the changed market circumstances they have seen. Secondly, we will be looking for firms to treat their customers fairly in these arguably more difficult times in prospect.”OnlyStop.com › Edit — WordPress
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