Understanding the price of new lending to households

Richard Button (), Silvia Pezzini and Neil Rossiter ()
Additional contact information
Richard Button: Bank of England, Postal: Threadneedle Street, London, EC2R 8AH, http://www.bankofengland.co.uk
Neil Rossiter: Bank of England, Postal: Threadneedle Street, London, EC2R 8AH, http://www.bankofengland.co.uk

Bank of England Quarterly Bulletin, 2010, vol. 50, issue 3, 172-182

Abstract: During the recent financial crisis Bank Rate was reduced sharply, but in general the interest rates charged on new lending to households did not fall by as much and indeed some interest rates rose. This article assesses the factors that have influenced new lending rates using a simple decomposition of new lending rates into lenders’ funding costs, credit risk charges and a residual (which includes both operating costs and the mark-up). Applying the decomposition to two indicative lending products suggests that funding costs have been an important driver of new lending rates and the residual has also risen. The residual needs to be interpreted with caution — by definition it reflects all the remaining unmodelled factors. But among other things, a larger residual is consistent with lenders increasing mark-ups over marginal costs for new lending, which may reflect a need to build higher capital levels within the banking sector.

Date: 2010
References: View complete reference list from CitEc
Citations: View citations in EconPapers (38)

Downloads: (external link)
https://www.bankofengland.co.uk/-/media/boe/files/ ... DB710FD4C6FB5E0D21F9 Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:boe:qbullt:0023

Access Statistics for this article

Bank of England Quarterly Bulletin is currently edited by Lindsey Fowler

More articles in Bank of England Quarterly Bulletin from Bank of England Publications Group Bank of England Threadneedle Street London EC2R 8AH. Contact information at EDIRC.
Bibliographic data for series maintained by Publications Group ().