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Roger Elwell - Yes Please

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Forcing The Banks To Lend Part 2

26 November 2008  |  3284 views  |  2

Yesterday saw the ante being well and truly upped on this issue, with the Bank of England Governor weighing in and the Chancellor speaking forth too, issuing veiled threats aplenty.  This smacks at a spot of scapegoating that does nothing much to help the real issues.

For starters, why would it be a good idea to expand mortgage lending still further, when the UK is already so overindebted on a personal level?  I saw predictions yesterday that suggested mortgage lending growth will be negative next year.  In a time of a) overindebtedness and b) falling asset prices, shouldn't a net repayment be a good thing?  Nobody seems to be saying how much additional mortgage borrowing the country could take - what is the maximum level if we aren't already beyond it?

Second, if HMG doesn't think the banks are doing enough to lend, it has two of its own vehicles already - Northern Rock and B&B - through which it could choose to take up the slack.  Hang on - they're busy winding those down and NR for example has already 'repaid billions' to the Government, which presumably represents a reduction in its mortgage book.  This reduction in those books is presumably adding to the problem, when they could be reducing it.  Talk about kettle calling pot black...

Third, we also saw that there will be a panel established that will monitor lending decisions.  I'm dying to see the terms of reference for this august body, as it will compose reps from banks, trade bodies, consumers and the Government.  It will be really great to see what a mess those will make of individual lending decisions, versus a trained lending banker.

Fourth, the banks are strapped for money.  We already know that much lending is securitised (i.e. not backed by deposits).  Given that banks are struggling to convince investors to renew the underlying funding they provide, this lack of funding will continue for some time to come.  The banks have been unable to raise even a few billion from investors in capital.  Why would investors choose to provide much larger sums of money to those same banks, as term lending?  It's no wonder that banks are reducing their asset bases - they won't be able to continue to fund them, never mind lend more...

I still believe that the biggest problem we face is overindebtedness.  Until we get the levels of debt down, and restore confidence in the banking system that the money we put with them won't be lost through bad lending, we won't see this crisis end.  That should be trusted to bankers to achieve, not a group of conflicting interests who have no training in the discipline.

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Comments: (3)

Alan Goodrich
Alan Goodrich - Goodrich analytiX Ltd - Harare | 27 November, 2008, 18:17

Absolutely! Maybe people realise the mess we are in is due to years of borrowing too much and just don't want to borrow any more! Its not that the banks don't want to lend, or need to be forced to lend - we simply, and sensibly, don't want to borrow...

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A Finextra member
A Finextra member | 03 December, 2008, 12:10

However, there are individuals that are not overindebted and can benefit from short-term loans or businesses with excellent business cases that also can benefit from funding or loans. 

If banks are getting bailout money or loans from the feds but are just hoarding it, then I think the fed should stop this nonsense. Don't know if its true but I heard that here in Europe (UK, France, Germany), banks are not extending credit at all. If this is the case, then there should be no bail out or loans for these banks. Gov. needs to step in and stop this deadlock.

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Roger Elwell
Roger Elwell - Yes Please - Colchester | 05 December, 2008, 15:40

The banks say they are lending more.  The Government say they aren't.  I guess we need stats to show which one is telling thr truth as I imagine none of us are that inclined to give either the benefit of the doubt at present.

What I do know from contacts in the industry is that funds are still scarce, simply because of their funding problems  and that's despite how much has been pumped in.  That shows just how big the problem is.

If a business has such a compelling case, then perhaps an alternative is to seek capital, rather than debt.  If the business case is that good, why can't they convince an investor to come in?

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Consulting to the financial services industry with a specific expertise in the cards business - issuing and acquiring.

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