UK twists the banks' arms to open up lending facilities
The day after the Fed published its plans of an $800 billion programme to boost lending, the UK Treasury has announced a similar push to facilitate lending. However, the UK Chancellor Alistair Darling is slightly less diplomatic about his efforts: he is threatening banks with full nationalization if they fail to give credit to companies in need. Mervyn King, the Bank of England's governor, stated he understand why some banks are on the defensive. In stead of extending more credit, they are using last month's £50 billion recapitalisation package to boost their balance sheets. However, in the long term this will only extend the severity of the current recession.
By forcing banks to revive their lending practices, the government is hoping to minimize the impact of the recession - but aren't rampant lending practices what caused this situation in the first place? If the UK is looking to lend its way out of the recession, banks need to feel so strongly recapitalized that they are able to take on the credit risks of SMEs and faltering consumers. As things stand, they don't seem confident enough to do so - even with Darling threatening them with nationalization.
1 comment:
Quite sadly Anika, it will only be a matter of time (rather has already happened) that the greed of these banks is as great as the fear of nationalization. Accounts penalties and fees are on the up as high-street banks are trying to improve their balance sheets. If the past few weeks is anything to go on, we can also expect to see interest rates on credit cards sore as banks attempt (while annoying the hell out of the consumer) to take advantage of the deregulated credit system that we have here in the UK. Good blog...I followed this particularly closely.
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