A high price for survival
24 Feb 09
At some point, government and regulators will have to decide whether they are beating the banks up for lending too much, or not enough
The numbers thrown up by the banking crisis just get scarier and scarier. The latest deal proposed by the UK government involves the taxpayer taking on the potential liability for an additional £500 billion in bad debts. The Asset Protection Scheme, which banks including RBS and Lloyds will have to accept or reject this week, aims to turn bad assets into good ones, effectively by insuring them.
The BBC now calculates that the UK taxpayer’s exposure to the banks’ bad debts in total adds up to some £1.3 trillion. Yes, that’s trillion.
To accept a transfer of risk on that scale the government will have to ask a high price. The scheme does involve the banks paying their “insurance” in the form of non-voting preference shares, which avoids the appearance of nationalisation even if, for the time being, that is the reality.
But should the government go further and lay down the law more heavily over what the banks actually do with their money? A survey published today by small business lobby group the Forum of Private Business shows that, for the FPB’s members, access to bank finance is becoming harder to find and more expensive.
Thirty-two per cent of the FPB panel of 150 businesses said their access to finance had deteriorated when they were questioned between 5-10 February. A mere two per cent said conditions had improved, while 66 per cent reported no change.
The problem is that banks are being told to stabilise their balance sheets and act more prudently, at the same time as they are supposed to be lending more. It’s a tough dilemma and I am starting to feel almost sorry for the banks. Almost.