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Business still being crunched by banks

Robert Peston | 09:31 UK time, Thursday, 23 July 2009

The chief executives of our biggest banks have been summoned to the headmaster's study on Monday morning.

Alistair Darling, Peter Mandelson, Shriti Vadera and Paul Myners will grill the bosses of Royal Bank of Scotland, Lloyds, Barclays, HSBC, Santander and Nationwide about whether they are lending enough to support an economic recovery - and, in the case of Royal Bank of Scotland and Lloyds, whether they are lending what they promised when kept alive by a massive injection of public funds.

Those who run our banks tell me that they're doing their bit, that they're supplying the credit to businesses and households which is being demanded. And if the official and unofficial statistics show that there hasn't been a great surge in lending, well that's because (in case we hadn't noticed) there's a recession on and there isn't a great demand for new loans.

Hmmm.

Here's an extract from the Bank of England's summary of business conditions compiled by its agents, which was published yesterday:

"The Agents' sense was that contacts' experience was becoming increasingly polarised as lenders sought to focus their activities on the least risky credits. That would be consistent with ongoing reports of tight limits being applied to banks' exposures to some sectors - notably, the property and construction sectors and some retail activities. There were further widespread reports that spreads and fees were being increased sharply on renewal or review of facilities."

To translate: there's less credit for business and it's more expensive.

And this anecdotal evidence was supported by the Bank of England's statistical analysis of lending by our biggest banks (published on Monday), which showed that net lending to British businesses remained negative in May: the three month annualised contraction in the provision of loans was a non-trivial 5.4% (or growth of minus 5.4%, for those who think in that way).

Bank of England

In fact for business, the statistics show that 2009 has been the year of the credit crunch rather than 2008. Last year, lending to business continued to grow, albeit at a much reduced pace. It's only this year that there has an actual shrinkage in lending.

The other absolutely vital point is that in 2007, well over half the growth in lending came from foreign-owned and specialist lenders - which have disappeared from the market completely. So companies are now wholly reliant on the old-established British banks, which are - or so the Bank of England reports - lending considerably less.

To state the obvious, there isn't a great sense of common cause or national purpose between the banks on the one hand and the government and Bank of England on the other on how to revive the economy.

There remains tension in the relationship, reflecting the banks' need to return to what they see as a sustainable level of profits and the authorities' fears that any recovery - as and when it comes - could be choked off either by the inadequate provision of credit or by the excessive cost of borrowing.

You might well ask (as Stephanie Flanders has been doing so eloquently in her recent notes) what all this tells us about whether the Bank of England's ambitious quantitative easing programme to inject new money into the economy - by buying gilt-edged stock - has had any significant positive effect other than to help the Treasury finance its yawning public-sector deficit.

That said, it would be wrong to say that there are serious credit constraints on all businesses. Big companies have been by-passing the banks and raising billions in new equity and loans - in the form of bonds - from institutional investors. And the very smallest companies also seem to be treading water reasonably well in choppy conditions.

It's the medium size businesses - those with a few tens or a few hundreds of employees - for whom the credit crunch remains a very harsh reality.

They are too small to disintermediate the banks and go directly for finance to investors. And they are too big to be considered by banks as a relatively modest risk.

Anyway, I would imagine that Darling and Mandelson will bellow at the banks that they have to do more for the important bedrock of our economy, those middling size companies - by at least advertising a little bit more effectively that they remain open for lending.

That said, there are some huge intractable problems here, which Monday's meeting won't go anywhere near to solving.

The first is whether the price of credit matters.

Mervyn KingAs I understand it, the governor of the Bank of England thinks it does, and is tearing his hair out that banks have taken advantage of the fall in funding costs that he's engineered by widening the gap between what they pay for money and what they charge for it.

The Banks think he's exaggerating the problem and misunderstanding what's going on.

They would argue that the cost for them of raising funds - from retail depositors or in the form of state-guaranteed finance - hasn't fallen by nearly as much as the reduction in the Bank's policy rate.

Also, they'd point out that they were charging far too little for finance during the boom years; that, as Mervyn King has pointed out many times, that they stupidly underpriced the risks of lending, and that all they're doing now is trying to put a proper price on risk.

But what if the Treasury mandated those banks wholly or partly owned by the state - Royal Bank, Lloyds and Northern Rock - to cut the cost of loans?

Well, the banks' disheartening reply is that if the independent banks, the likes of HSBC, Barclays and Nationwide, were being undercut, they'd simply quit the marketplace, and then we'd really know the meaning of a credit crunch.

Then there are the final, final points, which I've been belly-aching about for two years and are the most troubling of the lot.

Which are: first, that households, business and the public-sector have borrowed far too much; and, second, that the banks themselves became far too dependent on unreliable wholesale credit which - when that disappeared - was replaced by loans and other forms of support from taxpayers.

Just take households for a moment. They (we) have borrowed a record-smashing sum equivalent to around 175% of our disposable income, up from 100% in 2000.

We'd had eight years of continuous economic growth in 2000 - a long stretch by any standards - so a one-to-one ratio of debt to disposal income might well be a sensible, sustainable ratio.

But just think what that implies about how much more households will have to save over the coming few years, and how much less they (we) should borrow, if we're going to return to some kind of stable equilibrium.

In that context, what we should be hoping for from the banks - in the case of mortgage finance, for example - is not that the banks massively increase net lending, but that they provide what little credit there may be to those widely perceived to be in most need (first-time buyers, for example).

What's more, if we were to take the contrary view, that current levels of lending to households and businesses are perfectly reasonable and in fact should be increased, there is only one potential source of incremental lending: that's us, taxpayers.

Here's why.

Much of the growth in lending to households and businesses in the three or four years before the credit crunch began in 2007 came not from the accumulation of stable retail deposits but from the repackaging of debt into bonds plus other wholesale sources.

After securitised bond markets closed down almost two years ago and other sources of wholesale funds became difficult to procure, we the taxpayer filled the breach - with a mixture of direct loans and guarantees for borrowing by banks.

The Bank of England estimates that the gap between customer loans and deposits reached £800bn in 2008. It has also confirmed that the increase in taxpayer support for our banks since the crisis began has been £1.26 trillion or 88% of our economic output, GDP (compared with 73% in the US).

As I've said many times before, if we want to our banks to be weaned off the life-support machine provided by us, by taxpayers, then banks have to borrow less - and that means the amount they lend will shrink, very significantly.

Right now we appear to be as far from ever from reconciling the conflict between the short-term imperative that banks lend more, in order that the recession isn't too prolonged, with the equally important long-term imperative that they lend considerably less.

Comments

Page 1 of 3

  • Comment number 1.

    I hope the government does not push RBS and Lloyds to lend more money than is sensible, because that sounds awfully like the kind of thinking that got us into this mess

  • Comment number 2.

    Is there anyway that we can promote and sell cheap loans for the rest of this year and the beginning of next year so that we can have a mini boom before June 3rd say?

    Not too bothered what happens after that.

    Not for me of course but this worried looking Scottish bloke down pub has just started his holidays and wanted me to ask.

  • Comment number 3.

    Yes, and ..... banks should behave like good corporate citizens, they should be forced through their banking licenses to plan and operate according to longterm business plans, to abandon their tax evasion schemes and, generally, to serve the societies they operate in.

  • Comment number 4.

    Oh really?

    Well isn't this just like history taught us?

    Credit crunches cause the longest type of recession, and just as this one has, the crisis in the banking system is miniscule to the damage to the underlying Economy.

    The banks cannot drop their rates as they're trying to repair the holes in their balance sheets.

    Businesses cannot afford to borrow at the rates on the street.

    Something has to give - but only one of the players is backed by the Government.

    So who's your money on?

    I'm expecting small businesses to start folding in huge numbers soon.

    Only the big company job losses make the headlines but small enterprises are nicley 'hidden' from the media.

    I wonder if Shriti Vadera will be asked where those "green shoots" are that she saw back in January?

    Seriously though - ministers / baronesses / lords should be SACKED for making such outrageous claims and locked up for treason as it misleads the country.

  • Comment number 5.

    But it seems mortgage lending is on the way up along with retail spending which presumably involves some credit.

    So it would seem once again the banks are doing the wrong kind of lending in defiance of logic.

  • Comment number 6.

    Robert,

    I quite enjoyed your analysis and I'm glad to see I'm not the only one belly-aching. Your "great sense of common cause or national purpose" seems to me the very heart of the current problem - although, being French, I'd take a larger view of "national". We are all in the same (sinking) boat, give or take small differences in recklessness.
    The purpose of banks is merely to act as time machines, and provide the financing to make possible now what months or years of saving would only have allowed later otherwise. Everything else are technicalities. As long as banks see themselves (and/or are seen by governments) as "generating revenue" and creating riches, we are not out of the woods. Banks and enterprises, big and small, must pull in the same direction, and not try to make profit at the expense of the others.
    I remember something I studied in Latin, a discourse called "Apologue of members and stomach" (Google for Menenius Agrippa) that is quite appropriate to current times.

  • Comment number 7.

    At the height of the "boom", "flare up", or "bubble", (whatever you want to call it), I was offered over £90,000 in credit card loans, a similar amount in personal loans and goodness knows what they would have advanced me in mortgage.
    I could not have paid back ANY of this, but that did not seem to bother them.
    Millions did take advantage of these offers, hence our current mess.
    On a visit to a retail outlet centre yesterday, I noticed that the place was busy, with plenty of customers around, and they were buying.
    But the prices were way down on last years or earlier.
    Businesses are adapting, and one thing is key.....you can't sell anything if it's over-priced, and that applies to everything from houses to shirts.
    Small businesses are the life-blood of the UK economy, and this trend may increase.
    The City must not "sting" them too much, or the City will lose in the end.

  • Comment number 8.

    It is blindingly obvious that RBS and Lloyds are proactively reducing liquidity and scrutinizing existing loan agreements in a blatant attempt to reprice loans, ultimately to the cost of the company and the economy, with higher unemployment resulting from further cost-cutting this behaviour drives.

    The banks have reveted to type, as they did in 1990/1 and only the government and Bank of England stepping in again via London Rules or the like can stop this nonsense. They are unable to extract much more from their excessively geared mistakes, which are often loss-making and in distress, so are attacking mid-size companies which are profitable for now but having to make unbudgeted cuts to cope with the economic conditions and bank actions in repricing.

    We have a choice, allow the banks to de-gear and increase profitability gradually and sensibly through a recovering economy or allow them to do so fast (with higher unemployment and a far longer recession in the process). A nil brainer I'd have thought, unless you run a bank that is!

  • Comment number 9.

    Robert, we own some of these major banks, let's do with them as we wish. State banks are what we have, lets use them to punch a hole in the traditional ways of doing business in the city. We have an opportunity to undermine the reckless gambling culture that was normalised within the leading banks. Let's do it, lets have a openly recognised state banking sector that invests in this country, provides affordable loans in this country and encourages 'real' wealth generation within the other sectors that actually make things and provide useful services.

  • Comment number 10.

    one of my banks has just sent me a statement showing they are paying me 1.75% on my balance.... at the same time offering me a loan at 10.5%..(they do not seem to see the irony of offering to lend me my own money!) i wish i could run my business on such 600% margins...

  • Comment number 11.

    Hmmm, in physics, energy can neither be created nor destroyed but simply converted to other forms of energy. The same can be said for money in so much as there is a finite ammount which can change from a deposit to a mortgage to a repayment with interest to fund deposits and the interest thereon plus profits for the banks to distribute to share holders, the sum total of all the parts effectively still equates to the initial available ammount of money redistributed. Foreign investment may increase the localised ammount of money available to the detriment of it's availability elsewhere hence some become richer as others become poorer. So in effect wealth generation does not exist globally until someone decides to add money into the system (maybe think of this as bringing some energy back from the moon and repackages it into some kind of earth style energy that others then want to get). The effect of doing this causes hyperinflation (countries like Zimbabwe) which is offset in the developed world by manipulating interest rates but the fact remains that you can't alter the worldwide ammount of money without creating an imbalance elsewhere. Any other view is simply unsustainable. What we have now is a situation where so much alien energy has been brought back to earth that we have become dependent on it for our existence in the short term and need to be either weened off it gradually or go cold turkey this is the political decision currently being debated between Labour and the Tories IMHO and will be the central argument over the coming months. In the meantime everyone is stocking up as best they can on the financial equivalent of tinned food in the hope that they will have enough to survive the inevitable famine to come.

  • Comment number 12.

    How come the government thinks that the banks it does not own and has not helped have a duty to do what they say. They are businesses and thus are doing what they think is best for their business under the current conditions. why should that change because our governmnet wants it to. Particularly so when the governmnet is taking no risk and should the governmnet demands result is lost profits or anything the banks would hav eno come back for compensation on the government.

    If the government wants them to chnage what they are doing then they need to e.g. raise interest rates or something.

    Of course, the banks the gvernment now own and have bailed-out maybe have a duty to do what their shareholder requires - but that is UKFI not Brown/Darling and his mates.

    Labour's attitude seems very dictatorial these days - no "encourage" just dictating to everybody what they must now do. Kind of leaves a bad taste in the mouth but is very much the way Brown works.

  • Comment number 13.

    Does anyone have any idea where the Gov are going with all this, because I don't:

    "To translate: there's less credit for business and it's more expensive."

    Less and more expensive credit is a bit of a given after the trouble it's caused!

    ... and Brown and Mandy (the Blade by which Nu Labour will eventually commit Harakiri) are going to try to persuade banks to lend more...... stupidity beyond belief!

    But hey Mandy was only brought back to save Brown and Labour by politiking - deepest financial hole since the world was at war and the most significant appointment is a Professional Smoozer - God help us!

  • Comment number 14.

    So the sheer awefulness of the situation is clearly emerging and if I understand RP's drift there would appear not much more can be done. To avoid the economy spiralling further perhaps instead of quantative easing try public works, up rated benefits, deferred NI and company taxes (effectively and interest free loan) to SME's. The economy is not going to revive by exports (£10 DVD players to China?)so home demand is the only feasible way and putting spending in the pockets of the masses balanced by higher taxes on the well off (>£50K)is the only tentative alternative to depression and cold turkey unto death. Some of us did not see the last 10 years as a golden decade.

  • Comment number 15.

    I am sure the Bank Executives must be quaking in their cash filled boots-in your dreams everyone.Why do the supposed 'Powers that Be'not understand that their pussyfoot reactions have no effect on the Bankers.The Bankers continue to line their pockets at the taxpayers expense whilst cruelly and uncaringly pursuing individuals and small firms to the extent of near bankruptcy also making 1000's of ordinary employees redundant.Shameful -they should all be dismissed immediately.

  • Comment number 16.

    "To state the obvious, there isn't a great sense of common cause or national purpose between the banks on the one hand and the government and Bank of England on the other on how to revive the economy."

    And to state the even more (bloomin') obvious, there never will be as the globalised banks are only worried about their existence and prosperity and not the UK's ecomonic health.

    There is a FUNDAMENTAL difference between the bank's vested interests and the UK economy's.

    And that is why so many people have said nationalise the banks, or let them tumble, or split them up and nationalise the high street 'retail' banks leaving the 'casino' banks to run off on their own two feet to thrive or die without U.K. public money backing it.

    But, of course, that idea was argued down by the "experts" in the financial industry and their great mates, the other "experts" in the regulators, and their other mates the politicians. Which happens to suit the bank industry fabulously because they are still being propped up by various mechanisms (some more so than others) but STILL don't really give a monkey's whatever about the UK economy or its economic recovery!!

    It's a classis case of what Prince Philip described years ago as the "I'm alright Jack" attitude.

    And in this meeting of the great and good on Monday morning, who REALLY holds the power?

  • Comment number 17.

    I think that the whole direction of both the banks and Robert Peston on the one hand and the Bank of England on the other have both missed the point. 70% of new jobs are created traditionally by small busineses, NOT Mid-sized nor Large companies and it is theese same Small companies that are under increased pressure from the lack of funding. They survive by making people redundant and that adds to the woes of the UK plc. The owners take out further advances, based on last years' income not this, on their own homes to fund their companies because the banks are not willing to lend. I for example had my £10k overdraft facility removed after two years of paying for the facilitiy but not needing it, and the month I do need it, it is taken away. I now have to beg borrow and steal 'as it were' from family and friends to fund the company until orders are completed or sack everyone and go under, still losing the house, and letting down customers who need the services we provide.
    It is the banks who were greedy and lent to 'unproven third world clients' and bought 'over-rated' unworthy CDO's with OUR deposits that are to blame for this mess as well as their over marketing of debt to a needy consumer which they educated to live on debt.
    We need our overdraft facility back.
    I spent several weeks searching for other forms of credit, both business and personal, and this seems now to have proven to be counter-productive as my personal credit score dropped from 852 to 334 because I was deemed to 'be searching for large amounts of funding'. So Experian and Equifax are also part of this problem with their arbitrary 'Computer says no@ attitude.
    Please bring back the Bank Manager who knows his customers and who has some actually power to lend.

  • Comment number 18.

    And what precisely can the court of kings do to 'force' things to change? Shouting and ranting and banging fists achieves nothing, except the next consumable sound bite in the media feeding frenzy.

    Meanwhile, ranting aside, the liquidator and court sections dealing with company and personal bankruptcies etc must be doing a roaring trade! Care to divulge the business figures on that one, Robert?

    Banks AND big businesses are holding on to their money, leaving the smaller fish in the sea without their cash flow. This has being going on for months, and yet only now the court of kings have realised?!

    The more things change, the more they stay the same.

  • Comment number 19.

    A problem caused by too much borrowing and lending to be solved by more borrowing and lending. The boom was an illusion, time for reality. 1,2,3.....and you're awake.

  • Comment number 20.

    Put simply Robert, we have to live within our means. Therefore. UK and world trade will slow as the debt fat West goes on a slimming programme to reduce consumption. Growth will come from Asia as they aspire to become as debt fat as us!

  • Comment number 21.

    7. At 10:17am on 23 Jul 2009, stevewo wrote:
    At the height of the "boom", "flare up", or "bubble", (whatever you want to call it), I was offered over 90,000 in credit card loans, a similar amount in personal loans and goodness knows what they would have advanced me in mortgage.
    I could not have paid back ANY of this, but that did not seem to bother them.
    Millions did take advantage of these offers, hence our current mess.
    On a visit to a retail outlet centre yesterday, I noticed that the place was busy, with plenty of customers around, and they were buying.
    But the prices were way down on last years or earlier.
    Businesses are adapting, and one thing is key.....you can't sell anything if it's over-priced, and that applies to everything from houses to shirts.
    Small businesses are the life-blood of the UK economy, and this trend may increase.
    The City must not "sting" them too much, or the City will lose in the end.

    ----------------------------------------------------

    You have hit the nail on the head. The banks are too big and in order to pay out the bloated salaries have to resort to pricing expensive loans via an enormous profit margin. The banks need to become smaller streamlined operations with lower margins and therefore lower prices on the loans they offer.

    Small businesses as you say are adapting by lowering their prices to consumers. Banks must do the same. A new economy will develop mostly comprised of thousands of small to medium sized businesses along with a handful of household name blue chip companies. The days of the Square Mile earning Billions of pounds in annual profits are over. The banks must now realise that this is the price for their survival.

    In the world of digital communications, do Head Offices need to be located in expensive property locations? Additionally the to the high interest rates being charged for loans, the conditions on the loan in the form of collateral deposits are severe. Usually this is the residential properties of the MD of the small firm if the loan defaults. At the moment taking out a loan in the current economic climate is a very risky proposal indeed.

  • Comment number 22.

    Make no mistake, SMEs are being totally stuffed by the banks. They have raised the cost of borrowing to a usurous level and increased their charges significantly. SMEs may be the seedcorn of our future prosperity and provide a huge number of jobs, but they are a time-consuming irritant to banks. 'Big bucks'don't come from lending to SMEs.

    SMEs are having a really torrid time dealing with banks right now, but are afraid to publicise what is actually going on because of how their bank might react. Employers organisations have been singularly useless at highlighting their plight - probably because all their committees are peppered with bank representatives who would be quick to report any miscreant SME who dared to reveal their behaviour. Think this is paranoid? Go and ask the MD of an SME!

    A sad irony that banks perceive SMEs to be a big risk (and charge accordingly) when banks have recently been(and perhaps still are) the biggest risk to all of us...and we supported them!

  • Comment number 23.

    The BoE's description of the marketplace certainly mirrors my own recent experience. I've asked my bank for explanations - they have asked for more time to reply. I shall keep at them.

    Meanwhile, if anyone wants to know what the future holds for us, they might do worse than follow the debate about BORD SNIP in Ireland. This committee (of economists and accountants) produced a report recommending huge cuts in Government expenditure including closing schools and cutting hospital services, benefits etc. They are now being accused of being blinkered and promoting their own city interests and wealth at the expense of rural Ireland which was not, of course, represented on the Committee. The debate is just starting and regular commentaries are in (among other places) the Irish Times and Independent.

    Frightening.

  • Comment number 24.

    I tried to buy my first flat this month.
    The banks who are offering 0% on current accounts and less than 1% after tax on savings were quoting me 6% on a mortgage despite having a 30% deposit.

    Needless to say I'm going to rent for another 6 months for prices to become more realistic, which means for another 6 months I wont be buying furniture, decorating items, white goods...

  • Comment number 25.

    It just goes to show, Robert, that this is a very big hole we are in and it is going to take an awful long time to get out of it - meaning that the forecasts of five years, or even ten, are probably about right.

    Mervyn is quite right to be furious that his base rate reductions are not being passed on by banks but are simply helping banks to make more money with their existing rates. We are all furious about it (except for the bankers of course who reckon these extra profits are a result of their own talent, and therefore justify their continuing bonuses....... er, yes, Mr Hester).

    But it does highlight the two undeniable points - the huge lack of competition between banks, and the extent to which we as a people handed over control of our monetary system (not just in the UK but certainly in the Western world) to the casino bankers who have royally ripped us off and landed us in a big one.

    For the government to contemplate muddling through the next decade with largely the existing banking structures and regulations controlling our national monetary system (which represent the 'contract' between the working people on the one hand and the money-lenders whose product every single person is forced by the very same government to use, on the other) is simply not good enough.

    We need far reaching, breathtaking, once in a century changes to this system, of a sort that have not appeared so far on Gordon Brown or Alistair Darling's radar screen at all, but are indeed showing up now on Meryvn King and Vince Cable's and to a much smaller extent on David Cameron and George Osborne's.

    We need to get rid of the corrosive pathetic miserable idea that the only thing this country can be good at is money. We need to understand that the big bubble that was 'financial services' that grew up in the City of London over the past couple of decades or so, has actually, in part caused the relative decline in the UK's industrial and technology sectors (.... just think where all the talent went....).

    And we need to have a bit more confidence in ourselves to believe that if we start controlling the money-lenders more (limiting their size, getting them to disclose more information, introducing downside risks in bonuses, separating off certain parts from other parts thereby making links between them transparent etc etc) that UK plc wont collapse and the world for us won't come to an end.

    A belief in the fundamentals of the proper operation of markets - many players, highly informed buyers and sellers etc etc - would in fact suggest that such measures will in due course be seen to be to the advantage of our financial services industry, not it's detriment.





  • Comment number 26.

    The banks are behaving as private companies are supposed to do, maximising shareholder value. Of course they will take advantage of the current shortage of credit to charge high prices for it, and at the same time make sure the shortage continues by not lending too much. There will be an unspoken agreement between them to stay in line, because it is of such obvious mutual interest to do so.

    The government is torn between its concern for the economy and the need to let the banks make some profit in order to repay taxpayers.

    Why, oh why, were the banks not allowed to go to the wall? There would have been perhaps a week's chaos, while the administrators got the profitable retail side restarted, but all the stupid loans made by the investment sides would have been wiped off.

  • Comment number 27.

    Point 1

    I'd like to point out that unless a so called 'financial expert' accurately predicted the credit crunch, then they cannot refer to themselves as an expert. There's too much bandying around the expert word in my opinion. Mr Expert if you didn't predict it, then I'd suggest a change of career because you're clearly not very good at this one.

    Point 2

    When bankers moan that with further regulation they'd leave the country, I'd like to know exactly where 'they'd' go? Europe? I don't think so tougher regulations than here, USA? again now tougher regulations than here, Australasia? I don't think so, they don't allow criminals in. I say lets call their bluff, I wish I had a pound (not that it's worth anything) for every time I've heard "If so and so happens then I'm leaving the country"...

    Point 3

    If bankers are so deluded to think that no one else could possibly do their job then I say good riddance. Bankers have become the biggest criminals in our lifetimes and how criminal procedings haven't been brought to bear upon them escapes me. The sum of all the suffering they have created (with help from our government) is incalculable, shattered dreams, broken homes. You will never be forgiven for this.

    PS I'm not even going to start on the budget war in Afghanistan otherwise I may start smashing my keyboard on my desk.

    I thankyou.

  • Comment number 28.

    Some shocking editing in there Robert,

    Anyway, I would say that you are stating the obvious and therefore the actual act of "calling in" the bank chiefs is highly political and will have no profound significance. Unfortunately you stop short of actually calling the situation that, why is that?

    You also fail to point to the regulator functions of the triumvirate that allowed this expansion of debt to flourish

    I also believe that you are briefing that worse is still to come, the rollercoaster is about to head downwards again...with a certain inevitability.

  • Comment number 29.

    To rephrase what I wrote earlier.

    A proposal for change:

    Yes, and ..... all banks operating in the UK should be forced through NEWLY ISSUED banking licenses to plan and operate according to longterm business plans, should be forced to abandon their tax evasion schemes, should behave like good corporate citizens and, generally, serve the societies they operate in. Only under such conditions should they be given a new license to operate in the UK, given that they are essential public utilities and enjoy priviledged access to public funds.

  • Comment number 30.

    Aside from the inherent risk in lending in todays circumstsnces, the really big problem is that the infrastructure to "stuff" that risk is AWOL and no one has designed a replacement. Possibly the banks thought time would pass and normal service would be resumed but it won't be . there needs to be a root and branch redesign and we have to expect that borrowing and groweing enterprise is going to be a slower process asit used to always be.

  • Comment number 31.

    Relax everyone, the crash has simply revalued assets down to a level where we can afford to buy them its wealth redistribution of the highest order. The Share price in RBS and Lloyds is on its knees, people should be filling their boots buying them safe in the knowledge that the labour governemnt is going to tax the previous rich owners of such shares to fund the recovery in which mere mortal such as you and I can own large numbers of shares in the future.... Lovely!

  • Comment number 32.

    There's a very simple way the banks can get more deposit based funds to increase their lending-end the artificial and meaningless base rate 0.5% nonsense and get st deposit rates back up to where they belong (5-6% at least).

  • Comment number 33.

    Whilst the banks used dodgy practices to inflate their shareprice unfortunately business has also been doing this for sometime especially in the telecoms service sector, hyping shareholder value in exchange for bonuses giving them large shareholding not necessarily cover by true worth, therefore is it not obvious why the new chastened banks are not always keen to lend to equally risky over leveraged businesses. I worked for a company where one deal we did carried possible penalties more than three times the value of the contract (£250M) against much advice, lo and behold those penalties are now being claimed and contested. Gross mismanagement of business and undue risk taking goes a lot deeper than just the banking sector.

  • Comment number 34.

    Let's talk about Fractional-reserve banking.

    How can this be a legitimate practice?

    A bank has deposits of X.
    Imagine the amount that a bank requires in reserve X/10.
    The same bank can lend out (X-X/10) as magical mystery money that it has created out of thin air, while keeping hold of the original amount X.
    This thus increases the money supply, is inherently inflationary and has the effect of devaluing the base currency.

    What we require is a resource and technology based economy.
    The whole central banking system is designed to make the general population debt slaves.

  • Comment number 35.

    I dont think it's only a question of how much is being lent but how much the banks are charging - even on Governements special schemes. We have been charged 10% 'arrangement' fee for agreeing to continue a fully secured business overdraft for a further 6 months. Seems like extortion to me and this from a bank which we all own 40% of - perhaps we should offer to only pay the 60% as we have already paid the rest.

  • Comment number 36.

    Lending targets by themselves are a bad idea. Just go back to the old fahsioned prudent lending, to small and, especially, big, borrowers.
    I doubt the motivations of politicians forcing banks to lend.

    If lending targets are genuinely the right thing to do, then it can be easily achieved by a direct linkage of bankers bonuses and salaries to lending levels.

  • Comment number 37.

    Gordon Brown, as Chancellor and Evil overlord, fueled the consumer credit driven economy that launched us into the current recession.

    What happened to the rule where mortgages could only be taken out on 2 or 3 times of your base salary?

    What happened to the stigma that was associated with debt?

    Gordon Brown is the one who needs to be held to account.

  • Comment number 38.

    Odd that, Brown was only yesterday in his press conferance telling us how many families and small businesses that were being rescued by his goverments packages and policys.

    It ran to hundreds of thousands......

    Yet darling is calling the banks to order?

    Reminds me of Ukrainian tractor statistics.....

  • Comment number 39.

    It may be me but........
    I always thought that financiers infesting the City of London were paid their massive salaries because they knew what they were doing. They were the best that could be found amongst the population.
    We know that politicians don't know what they are doing when it comes to the economy. They are only interested in conning the public to vote for them at the next election. So what do they know about the economy?
    Then we have the Bank of England and its governor (my hero!).
    So between the three organisations the only ones I have any faith in are the good people employed by the Bank of England.
    Where is the debate?
    Politicians......?
    City of London financiers......?
    Or the Bank of England?
    I rest my case!

  • Comment number 40.

    Last time I looked Nationwde was

    1. A Building society rather than a bank.
    2. Being limited in its ability to lend by the unfair FSCS levy that has punished prudent lenders like itself while failing to encourage the wreckless lenders to take more care.
    3. Benefitting from not getting into a mess in the first place through responsible lending.

    This dying government is now trying to get them to ignore sensible lending to artificially boost the economy and save their own skins. i.e asking the banks to lend wrecklesly again - that's the only wayy to get back to 2008.

    The governments support of the Nationalised banks has provided those banks with protection and a competitive asdvanatge that the prudent financial organisations are unable to compete with. Hence all the silly rates.






    1

  • Comment number 41.

    if banks are having trouble making profits, do we have too many banks for these troubled times?
    the BOE and Gov won't let any of them go under, partly because of the enormous loan books they carry, but it may be a way out, to consolidate and reduce the number of banks.
    just as industry in the boom times, bought out and consolidated, now is the time to face the unpalatable truth -
    a) we have one or two banks that are dangerously overstretched (too large to fail) and
    b) we have too many banks taking too little of what profit there is to be had.

    Consolidation and unfortunately more redundancies are inevitable.

    Fewer banks will not instantly lead to lack of competition, but it may ultimately release much needed funding for the businesses that not only form the backbone of this country, but keeps the very banks themselves alive.
    They need each other as their own life support systems, perhaps as appropriately parasitically dependent as the Clownfish and the Anenome!

  • Comment number 42.

    When I owned Lloyds shares last year GB destroyed the value of them. I have since dumped those shares (at a loss), but still hold HSBC and Barclays.

    I want the Chief Execs of my banks to represent my interests as a shareholder above all else. The taxpayer does not have any interest in the activities of HSBC and Barclays, so if GB, Mandy, Darling et al want the non-taxpayer funded banks to do something that is not in their financial interests, the Chief Execs should, on behalf of the shareholders, tell them where to go. Period.

  • Comment number 43.

    33. At 12:47pm on 23 Jul 2009, notfooledsteve wrote:

    "I worked for a company where one deal we did carried possible penalties more than three times the value of the contract (250M) against much advice, lo and behold those penalties are now being claimed and contested. Gross mismanagement of business and undue risk taking goes a lot deeper than just the banking sector."

    Ah yes the classic loss leader strategy, generate a deal to get into a mraket sector int he hope of getting bigger better deals or additional revenues going forward. How many time has this linebeen used in meetings I have been in. Funny how liberal managers can be with other peoples money. It happened in the dot com bust at the beginning of the decade where every telecoms company was spending billions putting fibre in every orafice they could in the hope that they would be cheaper than the opposition and world dominance would follow. Unfortunately all that followed was a big bust where the incumbants, BT and Cable and Wireless bought the Energis' and Infonets of the world. Exodus internet was a classic example having "bought" digital island in the boom only to be rescued from bankrupcy within months by C&W and hence a state of the art infrastructure was built funded by debt which was written off by the bank while the assets were snapped up by the big boys.

    The real problem is that no one listens to basic business wisdom anymore which is if you have a pound, the aim of the business is to add value and turn that pound into £1.20 instead they say if we spend a million pounds but make a loss we will be up and running and can make the profit back next year. Too many people have bought too many Porches using this logic, the real shame is that many of them have gotten away with it

  • Comment number 44.

    It is nice to know that the banks are refusing to help the taxpayer when the taxpayer stepped up to the plate when the banks needed help.

    Well the answer to me is a whopping great tax on bank profits and executive bonuses and keep repeating it until they get the message.

    We are all in the hot soup together and need to look out for each other. If the banks are going to get fussy about our common situation then the rest of us should stand on their head and force them to drink the soup into which they dunked us in the first place.

    This is not the time to have meetings: this is the time to get rough and nasty.

    Don't these people know there is a recession on?

    Don't these people know there is also a war on for that matter?

  • Comment number 45.

    12. At 10:42am on 23 Jul 2009, DeimosL wrote:

    "How come the government thinks that the banks it does not own and has not helped have a duty to do what they say."

    I think you're missing the point here, whilst the Government bailed out a couple of specific banks - if they didn't then there would be no banks at all as that's what happens when there's a run on the bank.

    Too many people think this was just a Northern Rock or HBOS problem - the reality is the entire industry was dead on it's feet. If NR / HBOS and RBS failed they would have brought down all the others too.

    I'm looking at a credit fund at the moment, it contains various credit instruments written out by banks that are gone (Lehmans etc), banks that are nationalised (RBS etc) and banks who stil remain (HSBC). If the nationalised banks weren't there then this fund would be worthless.

    ....and it could be your pension, annuity or savings that would suffer.

    So please stop making out it was a few bad apples in the barrel - it wasn't.

  • Comment number 46.

    17. At 11:04am on 23 Jul 2009, whizbang2005 wrote:

    Whizzbang, maybe you could try ZOPA, an online deposit and lending exchange which may help and avoids using the banksters services. £10,000 is not a huge amount, and I am thinking of investing some savings in ZOPA so the return is better than the paltry offerings of the banks.

  • Comment number 47.

    Robert, dare i say this like many others have already.......Isn't it time for a non-banking story? Here's some ideas

    How about Lord Davies' comments about the UK needing to "export" its way out of recession. Maybe you could talk about the UK manufacturing sector, the weak pound and its chances of doing this.

    Maybe it is even time for a POSITIVE story. Say the two fellows at BrewDog the largest independent brewery in Scotland. Both in their mid-20s they've signed a massive deal to export to europe and have increased turnover by 200+ per cent recently

    Typically the main articel and te blog that follows are depressing! I dont think it would hurt to turn away from banks to other industry or even to success stories

  • Comment number 48.

    Two reports from researchers came out yesterday.

    One suggested that, by the end of 2010, Lloyds will need to write off $77bn (yes US$) of bad debts.

    Another suggested that RBS and Lloyds together will need to write off over £80bn (yes, pounds) during the same period.

    Is our esteemed Chancellor and previous disaster who held the post suggesting that banks lend as recklessly again in order to save their own political skins?

    That upstanding man who keeps writing about 'Courage' needs to grow a backbone and see what he's done to the UK economy. Or what will be left of it.

  • Comment number 49.

    These foolish politicians got us here by allowing mad house price inflation and it's accompanying equity release to fuel gdp growth for the sake of re-election, and now they want it to carry on. It won't happen.
    Depression here we come.

  • Comment number 50.

    20. At 11:25am on 23 Jul 2009, PrisonerNumber6 wrote:

    "Put simply Robert, we have to live within our means."

    Agreed - but how are we going to achieve that when the media ensures we are breeding consumer generation after consumer generation through advertising.

    Have any off you got kids? Have you seen the 'I Want, I want, I NEED'?

    The fact that parents are working longer and harder means a lot of them simply buy things for them in order to replace their absence. This fuels the consumer boom which the idiots in Government mistake for growth.

    "What is to be done?"

  • Comment number 51.

    Bang on ! Personally have been through the mill of remortagage this motnh with Halifax who were helpful but punitive given BoE rates, and have also attempted to take a loan to renovate a property - could find one lender who had a huge risk premium and fee, everyone else has left the market !
    The govt really have to swing the big stick here to get the economy going, and for many of us that means the housing market (all of it) needs freeing up.

    Clearly the banks are making money again and bonuses are on the march, but no products available to poor old consumer.

  • Comment number 52.

    26. At 12:04pm on 23 Jul 2009, stanblogger wrote:

    "Why, oh why, were the banks not allowed to go to the wall? There would have been perhaps a week's chaos, while the administrators got the profitable retail side restarted, but all the stupid loans made by the investment sides would have been wiped off. "

    I think this demonstrates why people were so concerned about the size of corporations. The bigger they are - the harder they fall.

    Whilst it might have been very exciting - letting the banks fail would have brought the whole system down.

    Please note everyone, that not only are the Government following the pattern that created this mess by borrowing more - but crucially they have waived competition law toc create super banks (both here and in the states) - which is yet another sympton of the problems we had.

    If Northern Rock was the small regional bank it started out as then it could have been allowed to fail - the same with HBOS and RBS. The problem is they weren't - in fact they have been allowed to grow and grow eliminating most other smaller competition on the way.

    This not only applies to banks, but all the other industries who are currently almagamating into 'Super companies' - which will all be 'Too big to fail' in the future.

    Sort that one out Gordon or Dave, or whichever mug gets in next.

  • Comment number 53.

    "Disintermediate" - wow, that's a new one on me! Still, it's a good explanation of things, Robert. I wonder how many people are doing as I am: repaying all debt ASAP and vowing never to borrow again from banks? Fortunately, my small business doesn't need external funding now but I feel very sorry for those that do - and also for those individuals who took personal risks with big mortgages, etc, as many of us did 10-15 yrs ago. If this mess had happened then I would definitely have been one of the casualties. There's far too much talk at the top (as always with politicians) whereas at the coal face the harsh realities are there for all to see and suffer. There are some easy things to do but politicians, regulators and bankers are all trying to save face rather than help everyone get through this crisis. Personal disasters for businesses, employees and homeowners really don't hit home to the decision-makers because they'll never face such traumas themselves. I guess we'll all cobble our way through until most of us rise to the surface somehow. Such a waste of people's lives and the country's immediate future.

  • Comment number 54.

    #47. MrManj wrote:

    "Maybe it is even time for a POSITIVE story... I dont think it would hurt to turn away from banks to other industry or even to success stories."

    Unfortunately, the nature of this blog is such that if Mr Peston were to write such a positive story (or even one that was not entirely doom and gloom) he would be accused of being a New Labour apologist by the hardcore of regular contributors.

  • Comment number 55.

    37. At 12:55pm on 23 Jul 2009, Invader-Zim wrote:

    Gordon Brown, as Chancellor and Evil overlord, fueled the consumer credit driven economy that launched us into the current recession.

    What happened to the rule where mortgages could only be taken out on 2 or 3 times of your base salary?

    Invader,

    You will have to go back much further than Gordon to answer those questions. It's very easy to blame the one who held the parcel when the music stops, but this same ethos has been driven by every Government in my lifetime - no matter if they were red or blue.

    It's far to simplistic to chuck the man out and think everything will be OK as a result.

  • Comment number 56.

    #48. Bluematter wrote:

    "Two reports from researchers came out yesterday.

    One suggested that, by the end of 2010, Lloyds will need to write off $77bn (yes US$) of bad debts.

    Another suggested that RBS and Lloyds together will need to write off over ?80bn (yes, pounds) during the same period."

    Those reports came directly from the Treasury, not from anonymous "researchers". And they were the topic of Mr Peston's blog yesterday.

    Do try to keep up.

  • Comment number 57.

    31. At 12:37pm on 23 Jul 2009, icantmakeupnames wrote:

    "Relax everyone, the crash has simply revalued assets down to a level where we can afford to buy them its wealth redistribution of the highest order. The Share price in RBS and Lloyds is on its knees, people should be filling their boots buying them safe in the knowledge that the labour governemnt is going to tax the previous rich owners of such shares to fund the recovery in which mere mortal such as you and I can own large numbers of shares in the future.... Lovely!"

    ....if only that were the case, unfortunately over the last 20 years the Government has been incentivising people to move from the state pension system into the private pension system (myself included) by contracting out of serps as well as giving tax breaks on stocks and shares ISA's - which all contributed to the boom in shares.

    That means it's not just the rich who will suffer but millions of innocent pensioners and savers who did nothing wrong except trust their Government.

  • Comment number 58.

    39. At 1:04pm on 23 Jul 2009, EuroSider wrote:

    "I always thought that financiers infesting the City of London were paid their massive salaries because they knew what they were doing. They were the best that could be found amongst the population."

    EuroSider - I have just been rushed to hospital as my sides have split with laughter after reading this.

    ....it's the same principle that the media use to say outrageous nonsense like 'Jordan is a clever businesswoman'.

    The lies infest every area of our lives and in these times the truth is the only thing which has value due to it's scarcity.

  • Comment number 59.

    43. icantmakeupnames

    Between you and notfooledsteve you have summed up the achillies heel of competition based markets.

    Now hopefully the rest of the world will see sense and ditch this ill-fated system.

  • Comment number 60.


    Most of last autumn, there were articles referring to the amount of corporate debt coming due right now. In the meantime, our esteemed leaders set up the 'asset protection scheme'. So its hardly news that the government wants the banks to lend...

    For example....

    If RBS didn't renew its part of the loan to the owners of Liverpool Football Club, do you think it would have been repaid? (collaterol for debt being US sporting assets which are likely to be debt financed)

    If it wasn't repaid, who would have covered the bad debt?

    Yes that's right, the taxpayer through the asset protection scheme.

    If anyone still thinks that mortgage debt is the UK problem just use a calculator to see how many mortgages of 200,000 would have to fail to have the same impact as the failure of one £350,000,000 deal. Then say how many 350,000,000 bad deals make 77bn. Then ask how many 10bn bank purchase deals of parts of ABN AMBRO make up 77bn and ask where the money came from.....

    The sums (I cannot call it maths) are easy.

  • Comment number 61.

    Agree with post #27.
    The rates of interest are extortionate but the charges are the real scandal. A relative sought to start a small business hoping to turnover £80000 this year in an essential craft. Two banks quoted £1000 as fees to open and demanded his home as guarantee even though he was proposing to avoid drawing down an overdraft (needed because his clientele might be slow to pay). He had to have a bank account in order to bank cheques from one public body client. Small wonder he is executing only cash business while negotiating emigration to a receptive Commonwealth country.
    Small acorns, etc grow to mighty oaks. Apparently not in UK2009. Two more generations lost to us.

  • Comment number 62.

    "I don't believe it!" The banks are not lending. Having perhaps spent the last few years with a fairly cavalier attitude to lending, they are now unanimously uber-cautious. Robert's article is interesting reading, but has he tried speaking to a mortgage broker of late. There are headline great fixed rate deals about, but only if you have a 60% LTV or better and you line their pocket with a whopping £1,500+ arrangement fee. No wonder Mervyn King is tearing his hair out, when the base rate is at 0.5% and LIBOR is at just under 1%, to the masses with LTV's of 80% or more finance is costing 5% plus, not too mention the the arrangement fee. Having personally entered into a house purchase and renovation project in November 08, I am now hearing a completely different story from my 48% publicly owned bank begining with L. I only want to flirt with the 90% boundaries until work is finished when I will be back down to 60-70%, Experian tell me I am "Excellent 97/100, can I get a mortgage or mortgage advance? No! The brokers tell me it has become worse of late, rates are going up and applicants are being refused for the most spurious of reasons. I really hope we do not have short-term memories as I will be interested to see the banks results next year, I suspect they will not be half bad (apart from the mountain of debt they all have parked in administration that has not been crystallised as yet) as they claw back the debts from existing customers.

  • Comment number 63.

    There is a lot of bleating on this blog but not a lot of solutions. Anyone?

  • Comment number 64.

    This posturing by Mandleson will produce nothing. This governmentis desperate for some good news and will do anything to get it.
    Teh public is not stupid, far from it, the know banks will never helpand can see how they have been hoarding taxpayers funding to make their solvency ratios look good.
    Teh only ones who cant see the wodd from the trees is the government and have not cottoned on that the banks did ot give them the full story of how big a mess they were in.
    All thsi is now why the UK is the Mickey Mouse player on the world stage. Labour will never be forgiven for that huumiliation.

  • Comment number 65.

    "54. rbs_temp wrote:
    Unfortunately, the nature of this blog is such that if Mr Peston were to write such a positive story (or even one that was not entirely doom and gloom) he would be accused of being a New Labour apologist by the hardcore of regular contributors."

    To be honest given the number of comments i've seen made along those lines i think he would get crucified regardless! He he says things aren't as bad then he'll get accused of talking things up. When he says things are bad many of the same people will say "yes but how bad are they really!?". So i don't think he can win on that point

    What i will say is that Phil McNulty, having written a piece for others to blog on, will later also get involved and post on his blog in response to others who ask further questions (obviously he doesn't respond to every question asked). To my knowledge i haven't seen Robert do this at all - please correct me if he does and i've missed it.

  • Comment number 66.

    Oh and of course I forgot to say that the 10bn was for the wholesale lending and investment bamnking bit of ABN AMBRO and that the regulator responsible for wholesale lending is now in charge of the FSA

  • Comment number 67.

    62. dhmeldrew

    We're in the same boat as you - my partner wants to expand her business but we're not prepared to pay the extortionate rates the banks are offering.
    We've gone from a situation where BTL mortgage companies were falling over themselves to lend money - to most of them not offering any products at all.
    My brother works in a building society and they no longer sell mortgages - they merely offer a broker service.
    Best thing is to sit tight, the rates are going to start rising again and you don't want to be caught out by extending your debt.

    There's a FTB on this blog further up who is typical of the situation, before they couldn't get the money together because of the rising house prices, now they can't get it together because of the rates, fees and deposit requirements.

    The banks are slitting their own throats and they are taking us down with them.
    I suspect they can't actually offer any lower rates because they have bigger holes to fill than they are letting on.

  • Comment number 68.

    So Robert,
    to summarise your article,
    Excessive lendiing by banks leading up to 2007 caused the credit crunch.
    Good Old Gordon (He put an end to Boom and Bust, Fiscal Prudence, Golden rule, Blah, Blah, Blah Blah) tells us all the fault lies with the banks for this lending, and they should rebuild their balance sheets through increased Tier 1 Capital Ratios.
    Businesses are struggling to obtain credit because banks overall are not lending as much as pre 2007. This is because a large portion of the pre 2007 market was provided by overseas banks who have now withdrawn from the UK lending Market. The rest are rebuilding their balance sheets as Gordon told them to.
    Still with me?
    So now we have a gaping hole in the credit needed by UK businesses, which will help all of us out of the recession.
    Who does Good Old Gordon blame? That's right, he blames the banks that are left that he told had to hold higher capital ratios, which at the same time restricts their ability to increase lending.
    So my conclusion is:
    We have Good Old Gordon spinning arround like a Whirling Dervish, telling banks to do one thing and when he has spun around again telling them to do the opposite.
    On top of that we have you doing Gordon's bidding for him. Do you and Gordon really beleive all this rubbish, What happened to the Iron Chancellor? Are you honestly proud of the quality of the articles you now write after a long career in journalism.
    Please we are not all fools, how about some honesty?
    I am not defending Banks or Bankers, but Gordon Brown can't take the glory like he led us to believe, when in fact he rode a Global Boom, and now that the proverbial has it the fan deny that any of the blame lies with the UK Govt, Treasury and Regulators. All led by himself.
    The man is seriously delusional.
    Roll on May 2010

  • Comment number 69.

    So the banks are saying they are doing their bit, i know of a lot of SME's who would beg to differ. Advertising a pretence to be lending is not enough.
    I also have little time for banks who receive taxpayers money, or keep the option of tax payers support in their back pocket, effectively saying their only obligation should be to their shareholders and moaning that positive intervention by government owned banks would distort the market.
    Will the bankers be able to keep a straight face pretenting to be concerned with what Darling / Mandelson and co have to say? somewhow I doubt it

  • Comment number 70.

    63. At 2:46pm on 23 Jul 2009, truths33k3r wrote:

    There is a lot of bleating on this blog but not a lot of solutions. Anyone?

    Unfortunately there may be lots of solutions but no-one on this blog is a member of the Government and therefore it will be a waste of time suggesting them.

    I would start by emptying whitehall and the HoP and housing all the homeless which we wil start seeing on our streets in large numbers soon. The civil servants and MP's can work in tents out front where we can see them and see what they are up to.

  • Comment number 71.

    55. At 2:22pm on 23 Jul 2009, writingsonthewall

    The Brown Man is the one who has presided over the collapse of society as we know it.

    Responsibility is my word of the day.

    Gorgo revels in his power, let him now take the responsibility.

  • Comment number 72.

    64. At 2:47pm on 23 Jul 2009, proman53 wrote:

    "This posturing by Mandleson will produce nothing. This governmentis desperate for some good news and will do anything to get it.
    Teh public is not stupid, far from it, the know banks will never helpand can see how they have been hoarding taxpayers funding to make their solvency ratios look good."

    1 - You are the first person I have seen who has spotted this, both here and in the states banks are recording profits which bouy the markets - sadly these profits are FAKE and once the markets cotton on they will crash.

    2 - The image of 'Mandelson posturing' is one that I cannot get out of my head now. It sickens me as I can only picture him posturing in a Borat style leotard and with his dodgy tash from the 80's.
    Please do NOT refer to this again or I will ask the moderators to step in.

  • Comment number 73.

    Is it better to be Pestoff than Peston?

    That is the question.


  • Comment number 74.

    Hello Mr. Peston, and kudos again for your insights.

    I believe I read your thoughts here some time ago, to the effect of 'banking used to be done face-to-face.'

    Small banks, bank officers who are long resident in the community--a situation where everyone has personal, relational, social 'skin in the game'. If a venture succeeds, everyone thrives and grins. If things go pear-shaped, everyone has to live with the discomfort of encountering everyone else in the grocery, on the football pitch, at church, at the school event.

    Big banks are out of touch with the businesses and communities they serve, and upon whom they depend for their survival. No one seems to be addressing this simple problem.

    The insane practice of propping up banks with taxpayer cash only compounds the problem. After all, if HMG or Uncle Sam have just dropped X billions into your business, who are the execs going to listen to? The local manufacturer of storm doors who needs credit to expand operations, or some nerd with a finance degree at Treasury? Or, more ominously, the local politician of the dominant paty?

    In the meantime, at my small bank, the employees are looking for things to do, because they certainly aren't loaning money. The customers aren't coming in to apply, as they have become at least as risk-adverse as the banks!

    Who would wager some portion of future revenues on a loan, given the events of the last twelve months?

  • Comment number 75.

    Just transcribed the voice from the bug at the real meeting in the toilets....

    Mandelson: Re-inflate the balloon.
    Bankers: But, its busted, and that is how we got here.
    Mandelson: Just do it!
    [pause]
    Bankers: Why not invest in building assets the Nation needs?
    Mandelson: Who cares about the Nation - I just want to be re-elected.(having not yet grasped that he wasn't elected!)

    (By the way nobody got a word in, apart from Mandelson!)

    The meeting is a far more of joke than the imagined transcript above. The participants are mainly those who caused the problem and whose whole education prevents them from understanding what they did or what they omitted to do. They don't have a clue. There is no plan!

  • Comment number 76.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 77.

    So, we have paid for the banker's excesses and now will suffer for several years, real pain for people who lose their jobs or homes. However, the banker's first priority is to return to previous levels of profitability and presumably reward. The real answer is to force them to operate at very low profitability to repay debt as soon as possible and reduce bonuses to zero while doing it. In this way it's the criminals who are punished, not the victims.

  • Comment number 78.

    #63. truths33k3r wrote:

    "There is a lot of bleating on this blog but not a lot of solutions. Anyone?"

    I am no expert in banking licences, but why not attach stringent conditions to banking licences in the UK and make them renewable every few years. Obviously it is not easy to shut down a major bank, but massive penalties could be imposed during a probationery period once a bank did not follow the terms of the renewable banking licence.
    All banks operating in the UK should be firmly under the law of the land, enforced by renewable banking licences, and banks should not be allowed to play hide and seek with the national law and tax system.


  • Comment number 79.

    Robert,
    You are correct I have just needed to raise £2m for a major piece of plant which will create 60 new jobs in manufacturing mainly for export.
    I have a good credit rating and as the loan would be secured against a fixed (very saleable) asset you would have thought that this was just the kind of lending that they are being bankrolled to do.
    I prepared a full kit enclosing management accounts, f/casts debtors creditors etc etc etc so that the information was there for any possible enquiry.
    However whilst all of the government funded banks were gushing in their enthusiasm to lend the money, all of them have found a myriad of ways to stall and defer making a decision. The routine goes like this, the ask for clarification on a minor point we reply and then 7 days later they ask nother 5 questions, we reply and then 7 days later they ask another 10 questions.
    I have been told unofficialy that the UK banks are not open for business but the asset based lending team have been told to go through the motions.
    I have raised my funds now through a foreign bank, I am still waiting for an answer from the British banks.

  • Comment number 80.

    75. At 3:25pm on 23 Jul 2009, John_from_Hendon

    Is there a reason that Little Lord Mandle-Foy met the Bankers in the toilet.

    Did he leave the meeting looking flushed?

    Is there a suggestion of insider dealing in your post?

    Are you suggesting that this type of back door shenanigans are the stock and trade of the individuals involved?

    Who was inflating the balloon?

  • Comment number 81.

    Why is ir that you and just about everyone else now knows the harsh reality that the country was and still is horrendously overborrowed.

    The government continue with all sorts of stalling tactics pushing the problem further and further into the future. This is grossly unfair on those who will eventually have to pick up the bill.

    Political it is but sensible it most certainly is not.

    Why is it right that those responsible for overborrowing in the first place should not feel any pain and those who will be struggling to pay their debt off in the future will have to take the hit.

    Homeowners still sitting on masses of equity and benefitting from ridiculous low interest rates while those trying to buy their first home cannot get a mortgage even if they can afford these well overpriced properties.

    We can backtrack easily to the beginning of the credit crunch and see where the policies have gone wrong. Had the right decisions been taken then we would not be looking forward to such a long dismal future.



  • Comment number 82.

    '... all they're doing now is trying to put a proper price on risk...'

    Pull the other one. WE are carrying the risk!, they aren't putting a price on anything but their own pensions and bonuses.

    Solutions?
    Break up these banks. Split each of RBS & Lloyds into 4. Tell Barclays if they want to continue to operate in this country, they can split their High St. operations as well.
    Make them compete against each other properly; you'll soon find no more 1,500GBP arrangement fees for some off-the-peg mortgage deal.

    Demand a proportionate relationship between LIBOR and base rate, otherwise windfall taxes come back in.

    Demand unilateral mortgage acceptance for anyone in 'secure' employment at 3 times salary plus 1 times partner salary if they can come up with 10 per cent deposit. (The Govt. has a protection scheme in place already, yet they are skimming all sorts of charges and fees on top.

    And for business lending, an ombudsman to review bank refusals or exorbitant charges on loan offers to review banks (and applicant's) conduct in contested cases.

    Question-
    Why are these larger companies going the bond route?
    It can't be cheaper than the mainstream banks. Is it not the case that the investment banks are creaming off huge profits on these deals, and the corporations are in deep doo-doo and desperate to sign up to any deal that puts off the funding crisis for at least one more year?

    Regards,

  • Comment number 83.

    71. Invader-Zim

    In your earlier post you rightly referred to the "What happened to the stigma that was associated with debt?"

    This was something Thatcher did in the 80's - so it's a bit rich laying it all on Gordon.
    The bottom line is every Government and Prime minister has been guilty of creating this mess for the past 30 years.

    You can change Gordon in May but I can GUARANTEE that if one of the 3 main parties get in it will be the same old story....

  • Comment number 84.

    I read somewhere this morning, what this country needs is a new Marshall Plan, not a banking bail-out.
    (look it up)

    The re-construction of this country to compete in the modern world is in ideas, technology, highly skilled manufacturing, and to some extent automated processes. Not in banking, not in the public sector, and not in government.

    All central government should ever do is create deterrents against criminals, set taxation, monitor inflation, and check the armed forces are adequately in readiness. A wee bit of strategic thinking every now and then unfortunately (cos they are useless at it) -for transport and energy and some healthcare 'big-picture' issues
    Everything else should be devolved to a local level, where decisions can be made accountable. Each county should be trying to compete against their neighbour to improve services.

    Pour the billions into the private sector.
    I work 80 hours a week, irrespective of what I pay myself.
    I would treble my number of employees within 3 months if I thought we weren't going to be bug****d every time there was a recession, when our client go bust and we are left holding the baby each time.
    It took us at 5 years on average to recover following the 1990 collapse and each one after that. We were paying 27% interest at one point (exceeded authorised overdraft), and 15% some of time I recall.

    We point-blank refused to grow after the last one.

    Regards,

  • Comment number 85.

    70 John_from_Hendon

    There is no plan!

    Let me elaborate

    There is no plan
    There never was a plan
    There never will be a plan
    There will only be elections where people propose plans that never get implemented.
    The country will be going down the 'plan'

  • Comment number 86.

    #82. allmyfault wrote:

    "Demand unilateral mortgage acceptance for anyone in 'secure' employment at 3 times salary plus 1 times partner salary if they can come up with 10 per cent deposit."

    That's completely unrealistic. You would also have to take into account the applicants' ages, other debts and savings, dependents, the relative level of "security" of their jobs, the value of the home their buying compared to the price they're paying for it and a dozen other factors.

  • Comment number 87.

    80. Invader-Zim

    Please, please, please will you stop talking about Mandlesson 'blowing things' in the toilet - it makes me heave.

    Maybe he was looking in the bowl for the next plan....

    What's his title again? Business secretary - does this mean he wears heels and stockings?

  • Comment number 88.

    The banks would find it easier to make 'sustainable levels of profit' if they did not pay bankers so much i.e. between 50% and 75% of revenue going on pay. Cut that to 25% and problem solved.

    How to achieve that? First nobody should get bonuses until the bank is out of the woods. Second share infrasturcture with competitors. This is what the 3G cellphone companies did - shared infrastructure operated by third parties in some cases rather than every network building out its own set of base stations. For example, the computing infrastructure to operate bank accounts could be operated by a third party service company and shared between multiple banks - this also has the advantage that the computer systems are isolated from the financial failure of banks. Similarly, just like at airports one service company can provide check in for multiple airlines in many areas of the country a service company could provide basic branch services for multiple banks.

  • Comment number 89.

    84 Allmyfault

    'I read somewhere this morning what this country needs is a New Marshall Plan not a banking bailout'

    It certainly does and many ideas like yours should be thrown into the pot because the present lot in power don't have any.

  • Comment number 90.

    63. truths33k3r


    ...actually I've changed my mind - I do have the perfect solution.

    We all know that just about every asset is overvalued. We have built too much and too many goods. The result is either a steady 'devaluation period' (deflationary) - a collapse, producing a similar effect (but faster) - or to create another boom to make it 'seem alright again'.

    How about this - why doesn't Gordie announce a holiday for the country. That's right, a shutdown of the whole shop. This way we can go through the deflation and all get a sun tan.

    When we get back down to 'true value' then we can all go back to work.

    It will work nicely, we can all go out and help out on public works projects if we're bored at home and I can almost guarantee the country would vote for it in huge numbers.

    The MP's seem to have afforded themselves a 12 week break - so maybe the rest of the country needs one too - we have all been working hard for the last 10 years - don't we deserve it?

  • Comment number 91.

    We interrupt this programme...

    Since we are yet again talking about banking (yawn,yawn) has anybody noticed that all the bad news of the last few days (from unemployment to national debt to Treasury accounts not being signed off etc) has been buried under the 'swine flu' hysteria?

    There's a link here I believe. The Government (note not the NHS) have today issued a statement (amongst others) that 100,000 cases of swine flu have been reported this week and of course have been taking the plaudits for setting up a natioanl call centre to get 17,500 people off the unemployment register.

    THERE'S ONLY ONE PROBLEM. We have absolutely no idea how many swine flu cases there actually are becasue we are not confirming them by lab testing. And of course sick people will now convince themselves (via online checklists) that they have swine flu whether they have a cold/ food poisoning et al. Compare with the US who do for example.

    US = 40,000 cases so far confirmed since April 15 (http://www.cdc.gov/h1n1flu/update.htm), 260+ deaths (but not necessarily caused by swine flu) from a population of 300 million.

    UK = 100,000 in a week, 840 hospitalised 63 critical. Population 60 million, 26 deaths but not necessarily from swine flu.

    Are we serious?

    Somebody is playing a game here and costing a lot of time and resources......never mind unnecessary panic....sign of the times I guess...

  • Comment number 92.

    86. At 4:46pm on 23 Jul 2009, rbs_temp wrote:

    "That's completely unrealistic. You would also have to take into account the applicants' ages, other debts and savings, dependents, the relative level of "security" of their jobs, the value of the home their buying compared to the price they're paying for it and a dozen other factors."

    .....only if you were bothering to assess the risk - and it's not been done for the last 10 years so why bother starting now????

  • Comment number 93.

    Robert

    Your quote:

    'The other absolutely vital point is that in 2007, well over half the growth in lending came from foreign-owned and specialist lenders - which have disappeared from the market completely. So companies are now wholly reliant on the old-established British banks, which are - or so the Bank of England reports - lending considerably less.'

    >>>>>

    For what its worth, I think this is probably your 'best pick' since last December/January and I see that quite painfully you appear to be coming round piece by peice to my way of thinking on my 'favourite subjects' and be also getting ready to point the finger...

    1) The present labour government have, since 1997, abdicated their responsibility regarding the management of the UK economy and banking/finance sector and the question (with the benfit of some considerable hindsight) was not 'if' the UK economy would derail but 'when'.

    2) Globalisation and internationalisation of the former UK national economy (as we do not now have a real UK national economy as we're just part of a globalised corrupt mess run by a 100 or so financial centres, government and private banks, tax havens and billionaires, spivs speculators and free-loaders)... has gone way too far and regulation of the finances of the current UK virtual national economy will now be immensely difficult due to this international tangled web of finance/ banking structures and bad loans.

    3) 'Our' (government/private) UK investment somehow needs to restablish a clean UK banking and finance structure and be be aggressively innovative and protectionist and invest in wholly UK investment projects (buying expensive jobs of Nissan is not the answer). We need to give money to new UK start up companies and not keep giving taxpayer money to bail out banks which send a good part of this money overseas into the 'global mess.'

    4) Goondog Trillionaire Brown and his 'goon-show' is the problem! They have abdicated their responsibility of the UK economy (content to leave too much power with the EEC/EU) and are frightened to pick up the reins and manage the economy and empower UK business and create new enterprise zones etc with grants and prevent development except in the high employment areas - frightened to make tough choices - put money back into shipbuilding, green cars etc - Don't wait for Nissan and Toyota - we need to do it ourselves!

    5) The UK can only truly come out of overall recession itself early if we re-trench, protect, invest, re-structure our economy to buy British, block imports of foreign cars and goods, ration fuel - get tough! Otherwise, we will wait several years to find ourself many, many places down the global pecking order.

    6) We know that probably there is no British political party with the guts, know-how and mandate to do this (particularly the unmentionables)... but this is what is needed. The English PAYE taxpayer can't keep subsiding Wales, Scotland, NI, the Taliban, Robert Mugawbe's Henchman, £1 billion to India etc etc plus the lost Margaret Thatcher EEC rebate in Britain's favour.

    7) We must remember that when everyone rambles on about Quantitative Easing ...will it/won't it work etc., that this is all being done on borrowed money which we have to pay back. The foreign spivs may have disappeared but they will be back for repayment of the money used for QE - with special additional interest payments now attaching.

    8) Where are the radical political ideas to get us out of this national economic mess? That's why when I was writing in December 2008 and comments were flying in saying how cynical I was being - Robert, you have now got to £1.28 TR level in debt and so I'm being lenient on the devious lying megla-maniac we have for a Prime Minister by 'gooning him' with Goondog Trillionaire Brown?

    9) We need a national political/economic leader with the guts, ability and vision of Margaret Thatcher to get us back on our feet - and I do not see one anywhere at the moment.

    10) Freeport UK - Come and fleece us spivs, speculators and non-doms and get a passport or a knighthood has not worked and we need to get back to real basics - UK money for UK manufacuring for the UK economy producing UK jobs for British workers - The Prime Minister has said this but does not understand what is involved - because its easier to hide behind foreign 'over-printed currency' and global banking corrupt money and multiple 'GDP over-counting' than get his hands dirty with real UK investment.

  • Comment number 94.

    At 2:46pm on 23 Jul 2009, truths33k3r wrote:

    "There is a lot of bleating on this blog but not a lot of solutions. Anyone?"

    How about:

    1) Set "targets" on consumption reduction rather than economic growth (which is actually energy consumption & pollution increase)
    2) Work towards consumption equality by targeting highest offenders first
    3) Heavily regulate usury (e.g. limit maximum interest rates and the ability of banks to create money out of thin air)
    4) Gradually reign in the shadow banking system, as making money from money is not REAL wealth generating activity (e.g. introduce notional tax on derivatives and slowly increase % y.o.y.)
    5) Create an aspirational measure of socio-economic maturity based not on GDP per capita, but some other Index (one that accounts for activities more worthwhile than capricious consumption)
    6) Spell out to people that our voracious appetite for material goods and cheap travel around the world has turned us into nothing more than mere consumnivores: a most pernicious offspring of homo sapiens that is unwittingly victim, perpetrator and bystander all at once

  • Comment number 95.

    Alistair Darling, Peter Mandelson, Shriti Vadera and Paul Myners. What a pathetic line-up. Who can take these numpties seriously. They think they are in control. It's delusion, they have no control whatsoever.
    So what non-existent money will be lent to whom, who can't afford to borrow anyway?

  • Comment number 96.

    If you think the mainland banks are not lending you should try the NI ones - loans from them are like hens' teeth

  • Comment number 97.

    Rugbyprof.

    Oh it's better than that - in true 'spin maniac' style this Government is now applying the same techniques of handling the Banking crisis to the swine flu outbreak.

    "The death toll stands at 26 - the same as last week - but the Department of Health has reclassified the way it counts mortality."

    Reclassified the way it counts mortality? So when you think you're dead, the Government comes along and tell you different!!

    Regardless of this, even if there was a serious concern would you trust this Government to tell you? Did they tell us the REAL reason for going to war? or the REAL cause of the banking crash?

    (Taken from the BBC website so it must be true)

  • Comment number 98.

    The main problem may well not be with these banks but with financial nationalism.

    Bnaks under pressure to lend in the country that bailed them out still need to curtail lending so they simply close down lending elsewhere.

    Take one example- Brtain and Ireland.

    UK banks increase lending marginally but Bank of Ireland closes its book completely.

    Meanwhile, in Ireland, AIB and Bank of Ireland increase marginally while Halifax and Ulster Bank (RBS) virtually close their books.

    Result - both countries lose and competition delcines.

    This is just a microcosm of what is happening.

    Coupled with fact that demand for loans is probably well down, I am not sure that the problem with lending in the UK is as simple as blaming the UK banks.

    Lack of inter-governmental co-ordination to me is a much greater problem.

  • Comment number 99.

    We are dealing with the devine right of bankers to be very very rich. If not true they require that you have God tell them so, otherwise it is nobody's business how much they squeeze from the public, how many scams they run and how much bad paper they push off to the taxpayers. Seems like a good business plan, give all your bad loans to the government to pay off with taxpayer funds and keep all the good loans to make money. I wonder if they can tell that everyone can see the gaping holes in their souls. We can all hope that H1N1 has an affinity for bankers, nature does seek balance.

  • Comment number 100.

    Yes Writingsonthewall you spotted the 'dead parrot sketch' re mortality as well - LOL.

    And yes you right about not trusting the Government of truthfully informing us (a bit 1984 eh?)

    My real concern is the NHS is going to end up being 'politiced' in this. I know what they're trying to do with mortality classification but I'm mystified why they are not carrying out more diligence since this is literally costing 'an arm and a leg' (pun intended) to fund without any real evidence its needed..... because if it turns out to be a case of 'cry wolf' guess who is going to get pilloried? Not the Government.....

    Given the state of the nation's finances I can only think that there's a very dark prince behind all of it...

    By the way my comment earlier re yet another banking story (yawn yawn)today was not meant to be disrespectful to contributors but I can't really add any more to the debate since we seem to constantly go round on this one in RP's washing machine.....

 

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