Apparently the banks were pretty miffed to be hauled up to see Alistair Darling and asked why they were not passing on the BoE's interest rate cut. The banks wanted to widen their margins some more (most didn't pass on the full 0.75% cut that took place earlier this year, and some didn't pass on the full 0.5% cut in October and they still wanted to widen their margins further by not fully passing on November's 1.5% cut). They've been whining about their profits - but bank net interest margins are more than holding up according to this article from the Times.
Of course it's not the British government's job to ensure the banks make profits. Merely to ensure that they don't collapse. After all, no one forced RBS to blow £49bn buying ABN Amro, no one forced Barclays to load up with worthless US sub-prime paper, no-one forced HSBC to buy the US sub-prime lender Household. The banks seem to think they are the most important part of the British economy and that it's the job of other well-run businesses like Tesco, Sainsburys and others to take a hit in profits because the banks have run their own businesses badly.
Actually banks only employ 15% of the British workforce. The other 85% is employed elsewhere. The reason it was imperative for the recent rate cut to be passed on was that the benefit should hit households in December in time to pay for Christmas. We know that the banks don't wish to lend, and that households don't wish to borrow. The only answer in those circumstances is to make people's existing mortgage payments come down, so they have more disposable income available to spend for Christmas. Which in turn will keep retailers and others going and hopefully help them weather the crisis.
There are 1.7 million borrowers who are on trackers or the standard variable rate, and they will benefit from the rate cut being passed on. Another 1.5 million mortgagees were on fixed rates that expire this year. Most won't be able to remortgage - but going from a fixed of 3.75% to a variable rate of 5% isn't as bad as going to a variable of 6.5%. If people can keep up their payments, there will be less defaults. If those on variable rates have more to spend, there will be less pain for the non-banking sector, which also has debts to service. Which should help the banks, except they are too bloody short-sighted to see it.
I note that Barclays and HSBC are still holding out on passing on the rate cut. They are making a fetish of their "independence" from the government. They should be careful though. Customers are not stupid. They will walk to those banks that have the lower SVR, which should make those elusive "profits" much harder to come by for Barclays and HSBC.