Some banks claim LIBOR cheating caused by free bank accounts!

Several banks including Barclays of the UK and Santander of Spain are expected to press for fees for banking accounts at a meeting of the UK Parliamentary Commission on Banking Standards. Barclay was recently found guilty of involvement in LIBOR fixing.

The LIBOR (London Interbank Offered Rate) is an average interest rate estimated by leading banks that would be charged for inter-bank loans The rate is used as a bench mark for short term interest rates around the world.

The LIBOR scandal arose when it was discovered that banks had been reporting higher rates than they actually had been charging as a means for increasing the interest rate. The Financial Times published an article reporting that manipulation of the LIBOR had been ongoing since at least 1991. This implies that many people have been paying far more in interest than they should have. About 20 banks have been named in investigations so far.

Barclay's, a large UK bank, admitted that it elevated its rate. The bank paid a 456 million dollar fine and the CEO resigned. At least twelve global banks, including U.S. giants such as the Bank of America, Citigroup, JP Morgan Chase could face fines if found guilty of being involved. Estimates are that the rate hikes could have cost borrowers up to $22 billion U.S.

Now the banks are blaming their criminal action on free bank accounts. Of course many bank accounts are not free. The ones which are usually charge fees for writing checks and many other bank services. Overdraft charges and interest rate can be high. The banks make money by using your money that they loan at interest rates much higher than they pay on deposits. Many accounts do not even pay interest.

Now these cheaters want to press the government to mandate account fees so that they can take even more money from depositors! The CEO of Barclay's , Sir David Walker, obviously wants to recoup the $456 billion fine Barclays paid: He told The Sunday Teleigraph that the LIBOR scandals resulted from not charging for bank accounts. Sir David said:

‘One important barrier to competitive entry into the UK personal banking sector is obvious – the fact that the core product is usually given away for free, sold at below cost of production,’

If that is so it is surely common throughout industry and known as a loss leader. Rather than being a barrier to competition it is a means to compete.

Korean central bank reduces interest rate

   The Korean central bank, Bank of Korea, cut the benchmark interest rate down to 3 per cent yesterday (July 12). Most experts had predicted no change. There are conflicting factors in the economy a combination of slowing economic growth but also higher inflation expectations.
    No doubt the recent lowering of rates in China and Europe had some influence on the  decision. Korean Treasury Bond yields fell below 3.25 per cent. This is a record low since the beginning of the financial crisis.
   Tim Condon an analyst from Singapore said:"The BOK's move is not an issue because I figure the neutral level of the policy rate is 2.75 percent. Another 25-bps rate cut will come in August or September. Inflation is no longer a problem. Possibly rate cuts by central banks in Europe and China affected the BOK's rate decision,"  The Korean Finance ministry has revised the forecast for growth in 2012 from 3.7 per cent to 3.3 per cent. 
    External conditions are the main reason for adjusting the growth predictions. Europe is not yet recovering from its crisis and Chinese growth is slowing somewhat. The new forecast is in line with that of  the OECD (Organization for Economic Cooperation and Development) which in May forecast growth of 3.3 per cent in South Korea.
  The rate of inflation in South Korea slowed in June to 2.2 per cent, well within the target of  between 2 and 4 per cent. This may have also influenced the decision to lower the interest rate. For more see this article.

European Central Bank reduces interest rate to record low

  The European Central Bank has cut its interest rate to .75 per cent a record low. This was in line with expectations as the Bank tries to stimulate the economy by lowering rates. The rate paid on money other banks place in the central bank overnight has been reduced from .25 per cent to zero!
  The Bank of England approved an injection of 78.1 billion U.S. into the UK economy. The bank kept the interest rate at .5 per cent. Up to now the Bank has injected 325 billion pounds into the economy through quantitative easing.
   The UK treasury is also providing a support program designed to allow banks to provide cheaper loans. China also has been taking measures to stimulate its economy as growth slows there. For more see this article.

India keeps interest rate at 8 per cent

India is struggling with trade and budget deficits and a slowing economy coupled with high inflation. Many analysts expected that India would cut its interest rate to stimulate the economy but the bank left the rate at 8 per cent to tame inflation.

The vast majority of economists predicted that the rates would be cut. After the decision Fitch Rating industry cut the sovereign debt rating of India to negative. A falling rupee is contributing to the high inflation as imports become more expensive. The inflation rate is above 7 per cent a contrast with the situation in many developed countries where inflation is low.

In the first quarter of this year Indian GDP rose 5.3 per cent. The goal was for 9 per cent growth. Growth last quarter was lowest since 2003. The inflation rate at 7.55 is highest in the BRIC group of countries. For more see this article.

12 year old Canadian Victoria Grant criticizes banking system in Philadelphia talk

A video of Victoria's talk at a recent conference of the Public Banking Institute in Philadelphia has been posted on You Tube by her father. Her ideas are no doubt influenced by her father as well.

Her speech is noteworthy for the clarity of argument and being simple and straightforward. Grant points out that until the 1970''s the government borrowed money directly from the Bank of Canada. However now the government borrows from private banks and thus has to pay interest to them. Canadian taxpayers are thus having to paying interest on these loans for private banks' profit instead of borrowing directly from our own central bank. The reason for the change is obvious. It provides greater profit for private capital.

Grant's argument is not new. George Crowell writing for the Canadian Centre for Policy Alternatives last year argued that borrowing directly from the central bank “would make available tens of billions of dollars that are urgently needed to rebuild our public infrastructure, protect our environment, and strengthen Medicare and other social programs so vital in meeting human needs.” However it would not provide the banks more profits from interest!

Critics argue that the move would cause inflation as the government would print money whenever it liked. But was there greater inflation before the earlier practice was stopped? Imagine even a Green Party representative comes out for the bank ripoff. Ard Van Leeuwen a Greent Party of Canada activist said:"At zero percent interest we would actually be subsidizing, and hence encouraging, government borrowing," So would that not be a good idea to encourage green energy projects? I have included the You Tube speech. See also this article.

Brazil economic growth slowed to 2.7 per cent in 2011

Although 2.7 per cent growth might look quite acceptable to many European countries among the BRIC (Brazil, Russia, India, China) it is on the low end of the scale.

The poor performance arises from higher borrowing costs and a currency that is very high compared to many others. The high rial leads to exports being more expensive.

Many analysts think that the central bank will lower interest rates to stimulate borrowing. Finance Minister Guido Mantega predicts growth will increase to 4.5 per cent this year. However analyst John Welch said:"Brazil is losing international competitiveness," "They're blaming all the problems on the exchange rate, but have ignored structural reforms."

In 2010 Brazil grew by 7.5 per cent but this last year Brazilian growth trailed that of India and China. Growth this in Brazil fell short of the 4.6 average growth for South America predicted by the IMF.

The central bank increased lending rates last July to curb inflation but afterward economic expansion slowed. Now it is expected that rates will again be lowered even though inflation at 4.3 per cent remains relatively high. For much more see the full Bloomberg article.