Interest rate swaps could be the next banking scandal to hit the headlines

t seems as if interest rate swaps may be the next banking scandal to hit the press as many of the high street banks are fighting hard against claims that they are not lending enough to SMEs and thus possibly putting the economic recovery in jeopardy.

They are also now also being accused of mis-marketing products to firms that are concerned about the high costs of borrowing. Most of the available products vary slightly depending on the business and depending on the bank but they are all designed the same with swaps that were sold off back in the period between 2006 and 2008.

The other side of the situation is that when SMEs started to take out the contracts they were protected if the interest rates increased over a set level and there were costs that they would have to pay in exchange if the interest rates fell. As it happened, interest rates actually took a dive when the base rate was cut down to 0.5% which meant that thousands of business that purchased the interest-rate swap deals are now stuck paying three times as much interest due to the penalties.

This has caused many to actually go out of business because the cost of their loans was too high.Now the question that everyone is looking at is if the products were intentionally mis-sold to SMEs. Of course, there is the bankers’ opinion that if SMEs do like their contracts because of the way that they turned out that is just part of business.

On the other hand, many are concerned that the SMEs were not clearly told about the downside and the risk that came with taking the deal therefore leading to the banks getting the upper hand. Some of the complaints come from the fact that the deals almost always make sure that borrowers are locked into their deals for long periods of time and at the same time were talked into insuring their overdraft too heftily even if they were not even in danger of actually using them.