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Bank Lending Stalemate

13 December 2010

A Bank of England study has today accused banks of jeopardising the recovery due to its failure of making credit available to households and businesses.

At the same time the Business Secretary, Vince Cable, has repeatedly demanded that banks help to aid the recovery.

This is all very confusing. The UK taxpayer now effectively own several high street banks. However, the government - acting as stewards for the UK taxpayers, would appear to have no control over the banks and hence bank lending policies.

The fact that, for example, RBS went in to the red during its last quarter, as a result of making provisions for investment banker bonuses - speaks volumes.

Banks without doubt are now making it extremely difficult to borrow money. Interest rate margins and arrangement fees have multiplied whilst the criteria for lending itself is so stringent it verges on the impossible.

It is a fact that banks are seeking to bolster their balance sheets by reducing their lending exposure on property and in particular, commercial property.

It may well be 2012 before the banks start to relax current lending policies. This may well coincide with the period it will take for the government to understand the power to control banks that it already possesses.

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