Why don't banks pass on the benefits intended by monetary and fiscal policies?

One of topics this blog has documented over the last several months is banks not passing on to the real economy the benefits intended by monetary and fiscal policy.

Why don't they?  [Regular readers will recall that the FSA's Lord Turner said that regulators couldn't prevent the banks required to meet a 9% Tier I capital ratio from reducing their lending and precipitating a mini-credit crunch.]

The fact that they do not is one of the points that the Occupy Wall Street movement continually points out.

In the latest example, we have Irish banks refusing to pass on the benefits of the ECB's most recent rate cut to mortgage holders.  According to an Irish Times article,

BANK OF Ireland yesterday maintained its position regarding not passing on last week’s ECB rate cut to mortgage customers, despite saying that it expects its net interest margin to stabilise in the second half of the year. 

A spokeswoman for the bank said interest rates continue to be under review. In an interim management statement, Bank of Ireland reiterated its expectation that total impairment charges on mortgages have peaked. 

However, it noted an increase in mortgage arrears in August and September which it attributed to speculation about a mortgage debt forgiveness scheme, echoing similar comments made by KBC Ireland on Thursday.