The government and foreign donors have been lending at a concessional rate of just 3% a year to banks and microfinance institutions, which have been lending on at 6%.
It has long been against the rules for banks to engage in arbitrage by borrowing at the discount rate and lending in the Fed Funds market at a higher rate.
Bank lending in America has been growing at a faster rate than the economy as a whole (see chart).
Based on the recently published results of Spain's seven publicly listed banks, the investment bank Morgan Stanley calculates that lending in Spain is contracting at a damaging annual rate of around 8%.
And if it continues to grow at that rate, it will be lending half a billion pounds within three or four years.
Official lending is much larger in aggregate, but growing at a slower rate.
The former CEO of the U.K. lender gave his testimony under questioning today from British MPs, who were trying get to the bottom of how and why traders at Barclays had manipulated Libor, a key lending rate between banks that underpins a multi-trillion dollar market for financial products, from late 2008 onwards.
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Senior loans pay interest at rates that are determined periodically by reference to a base lending rate, primarily LIBOR, plus a premium.
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In leaving its key lending rate unchanged at 5.25% Wednesday, the Federal Reserve gave a nod toward acknowledging both a stronger economy and stabilizing inflation.
Person-to-person lending, dubbed Banking 2.0, generally allows individuals to lend to each other at a set rate on a certain timetable and offers a mechanism for tracking and payment.
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The RBI is widely expected to cut its key lending rate by a quarter of a percentage point Tuesday to stimulate an economy growing at its weakest pace in a decade.
Since October, the Reserve Bank of India had already slashed its key lending rate by 350 basis points, as part of a series of calibrated moves aimed at boosting liquidity and the sluggish economy.
The local currency hit a 10-month low and bond prices fell to their lowest in two weeks as markets were expecting the Reserve Bank of India to cut its policy lending rate at its June 17 meeting to help boost economic growth that has slowed to its weakest pace in a decade.
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