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By Sinead Cruise and Andrew MacAskill
LONDON, Aug 4 (Reuters) - Millions of savers and mortgageborrowers were still waiting to see on Thursday what impact theBank of England's move to cut its base rate to a record low of0.25 percent would have on them after a number of big banksresisted calls to act immediately.
HSBC, Lloyds Banking Group, Barclays, Royal Bank of Scotland and Santander UKstarted to review hundreds of savings and mortgage products onThursday, but only two committed to immediately passing on theBoE rate cut, to customers borrowing at standard variable rates.
By 1529 GMT Barclays and Santander UK, the British arm ofBanco Santander, had already decided to pass on thesavings, while rivals HSBC, Lloyds and RBS, told Reuters theywould evaluate deposit and lending rates offered and informaffected customers of any changes in due course.
Any decision not to pass on the cut, made as part of theBoE's efforts to restore consumer confidence and boost spendingfollowing the vote to leave the European Union, would putlenders on a direct collision course with policymakers.
"The banks have no excuse, with today's announcement, not topass on the cut in Bank Rate and they should write to theircustomers and make that point," BoE Governor Mark Carney told anews conference.
Shares in HSBC, RBS and Barclays were trading up at 1529GMT, as investors took a sanguine view of the cut and the extrapressures it could put on the profitability of UK banks, whichhave seen lending margins slashed in recent years.
Shares in Lloyds were trading down 1.7 percent.
In recognition of the likely strain a fresh rate cut wouldput on lenders, the BoE's Monetary Policy Committee (MPC) saidit would launch the Term Funding Scheme (TFS) to providefour-year funding for banks at interest rates close to the BankRate.
Under the terms of the scheme, banks can initially borrow upto 5 percent of their outstanding lending to UK businesses andhouseholds and will be able to access the lowest cost of fundingif they maintain or expand net lending to the real economy.
In addition to their initial allowance, they can obtainanother pound of funding for every pound their net lendingexpands between end-June 2016 and end-December 2017.
But if their lending shrinks, they will face a higher feeand receive no additional allowance. For each 1 percent that netlending falls, the cost of TFS funding will rise by 0.05percentage points to a maximum of 0.25 percentage points overBank Rate.
Banks' current all-in funding costs in wholesale markets ordeposit rates are currently at least 1.0 percentage points onaverage.
This isn't the first time the BoE has launched a schemeaimed at stimulating the economy by providing cheap money tobanks. Four years ago it launched a similar initiative calledFunding for Lending, which has provided around 60 billion poundsof cheap funding for UK banks and building societies.
But unlike Funding for Lending, the TFS will be funded bymoney newly created by the Bank of England, and as such, is aform of quantitative easing.
"This is a far more important BoE decision than it firstappears. Carney has very cleverly made some conventionalheadline changes, while disguising a potentially radical newtool. No one can now say the BoE is out of ammunition," EricLonergan, macro investment fund manager at M&G Investments said.
BENEFICIARIES
Analysts said the TFS suited lenders with higherloan-to-deposit ratios more than those who typically funded agreater proportion of their lending with retail deposits.
"We think 'past behaviour' offers a very good guide topotential bank attitudes to utilisation of the new Term FundingScheme. Lloyds has drawn 38.1 billion pounds under the Fundingfor Lending Scheme and, put simply, we think it has greaterflexibility than its more liquid peers to benefit from the TFS,"Investec's Ian Gordon said in a note.
However, some industry commentators said they were notconvinced Carney's stimulus measures would help keep creditflowing.
"Today's decision will test the limits of monetary policywhich many would argue ran out of runway some time ago. But thenagain we live in economically perverse times," Bill Michael,global head of financial services at KPMG said.
"In any case, and whatever your beliefs, there is oneinescapable fact - it runs the risk of placing a fragilefinancial system under further strain as it will have an adverseimpact on banks' ability to make money and impact their appetite to lend."
Speaking after the bank's half-year results last week,Lloyds Chief Executive Antonio Horta-Osório told reporters hebelieved that any additional monetary measures would "have avery marginal impact" because interest rates were already veryclose to zero.
Banking industry lobbying group the BBA said Thursday's ratecut and stimulus measures marked the Bank of England's 'whateverit takes' moment for coming to the aid of a UK economy rattledby post-Brexit recession fears.
"The decision to cut interest rates and increasequantitative easing sends a clear signal that the Bank ofEngland is taking a 'whatever it takes' approach to stabilisingthe economy," Rebecca Harding, BBA's chief economist said.
"Weak post-Brexit data is creating a perception that theeconomy is likely to slow and the decision to reduce rates hasbeen made on the basis of a perception of risk."
At the height of the euro zone sovereign debt crisis in 2012European Central Bank President Mario Draghi famously pledged todo "whatever it takes" to save the euro. (Additional reporting by Huw Jones; Editing by Susan Fenton,Greg Mahlich)
