The Bank of England vs the banks of England – Negative Interest Rates

What’s wrong with negative interest rates?

The problem with low and negative rates is that banks don’t like them. Which may sound like good news. Especially in a newsletter about taking on the financial establishment.

And perhaps it really is good news for those of us trying to get or refinance a mortgage. At least it would be good news in the short run.

But here’s the thing. When bankers aren’t busy wreaking havoc with your money or ripping you off (or both), they do perform some useful functions. They lend money.

And if they can’t do so at a decent profit, well, they won’t do so.

Sure, borrowing at 0% sounds good to you and me. But would you lend someone money at that rate?

Negative interest rates mean bankers are agreeing to lose money on their lending. Does that sound like something they would do?

And if they did do it, what do you think would happen to the bank over time? It would start to struggle.

In other words, negative interest rates do so much damage to banks that they undermine the banks’ lending activities. And even their financial soundness.

Banks then pass this lack of revenue on to their depositors. In the form of fees on accounts, negative rates on large deposits, or other fees. Either way, we end up paying somehow.

The point is, when rates go negative, banks lend less and make money in other ways.

Either way, it’s not great news for an economy addicted to debt. And not good news for anyone who needs a bank account. Which is all of us. Especially lately.

The Weak, Collapsing Pound against the Euro and Dollar.

Grasping Gordon Brown’s government are not too worried about the situation we think. Consider it from their point of view: Anybody with savings in foreign currencies is moving their cash back into sterling right now at happy rates. (Assuming their bank has not gone bankrupt already.) People who fled Gordon’s high tax regime and those with second homes are selling up and coming back to England to ride out the storm – bringing their Euros with them. That’s a lot of extra cash flowing into Gordon inc. to be taxed and a few possible voters for him coming home. [He hopes]


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