Published: 13 Dec 2010
Last Updated: 19 Aug 2013
Are the banks to blame for the fall in lending that is checking the UK recovery? The big high street players have constantly insisted that the problem lies with demand, not supply. But that's not what the Bank of England seems to think: it suggested today that tighter credit supply is 'likely to have been the dominant influence' on the fall in lending. But with banks under pressure to rebuild their balance sheets and repay their loans - not least from the Bank of England itself - should we really be surprised?
The suggestion came in the Bank's latest Quarterly Bulletin, which as you'd expect from a document that's about the same length as the Domesday Book, contains several interesting nuggets. It accepts that there has been a drop in demand - but it argues that if this was the only reason for the fall in lending, loans would actually have become cheaper (as lenders fought for business). Since they've actually become more expensive, that suggests tighter credit supply from the banks is the main problem - i.e. they're sitting on their money, and increasing their margins when they do lend. And as such, the banks are threatening to 'dampen the recovery', it says. The general populace didn't any further reason to resent the big banks. But this will only fuel the fire.
So what does this mean in practice? Well, businesses who have been turned down for credit lately will know all too well. And there's an interesting insight into what it means for the rest of us elsewhere in the Quarterly Bulletin, in a section on household finances (based on a survey by NMG Consulting). Apparently 22% of people said they'd been put off spending because of the cost of borrowing. That’s up from 16% last year. And nearly half were worried about their level of debt, with the majority more worried than they were two years ago.
More alarmingly, the burden of unsecured debt has actually gone up this year, not down - the theory being that people are being forced to rely on credit cards with punitive interest rates because secured debt is so hard to come by. What's more, only about a fifth were saving or planning to save – which is less than a year ago. Doesn't look like deleveraging in action, does it?
So, another reason to kick the banks? Well, it's worth remembering that they're under pressure to rebuild their balance sheets, and be less free and easy with credit as they were in the old days. Also, reports suggest that the Bank of England itself is pushing the high street lenders to repay early the £185bn they borrowed under the Special Liquidity Scheme, in order to avoid a fresh credit crunch when the loans expire next year. So is it any wonder they're less inclined to part with their cash? And is it a bit unfair of the Bank to castigate them for it?
The suggestion came in the Bank's latest Quarterly Bulletin, which as you'd expect from a document that's about the same length as the Domesday Book, contains several interesting nuggets. It accepts that there has been a drop in demand - but it argues that if this was the only reason for the fall in lending, loans would actually have become cheaper (as lenders fought for business). Since they've actually become more expensive, that suggests tighter credit supply from the banks is the main problem - i.e. they're sitting on their money, and increasing their margins when they do lend. And as such, the banks are threatening to 'dampen the recovery', it says. The general populace didn't any further reason to resent the big banks. But this will only fuel the fire.
So what does this mean in practice? Well, businesses who have been turned down for credit lately will know all too well. And there's an interesting insight into what it means for the rest of us elsewhere in the Quarterly Bulletin, in a section on household finances (based on a survey by NMG Consulting). Apparently 22% of people said they'd been put off spending because of the cost of borrowing. That’s up from 16% last year. And nearly half were worried about their level of debt, with the majority more worried than they were two years ago.
More alarmingly, the burden of unsecured debt has actually gone up this year, not down - the theory being that people are being forced to rely on credit cards with punitive interest rates because secured debt is so hard to come by. What's more, only about a fifth were saving or planning to save – which is less than a year ago. Doesn't look like deleveraging in action, does it?
So, another reason to kick the banks? Well, it's worth remembering that they're under pressure to rebuild their balance sheets, and be less free and easy with credit as they were in the old days. Also, reports suggest that the Bank of England itself is pushing the high street lenders to repay early the £185bn they borrowed under the Special Liquidity Scheme, in order to avoid a fresh credit crunch when the loans expire next year. So is it any wonder they're less inclined to part with their cash? And is it a bit unfair of the Bank to castigate them for it?
