Ownership but no accountability
6 May 09
Banks are being asked to strengthen their balance sheets, but also to carry on lending to businesses and homebuyers. Maybe there should be more transparency about how this dilemma is being addressed
Last week’s report from the Treasury select committee looked, at first sight, like a another statement of the blooming obvious from Westminster MPs. "Bankers have made an astonishing mess of the financial system," according to committee chairman John McFall (see News, 1 May).
But the report did highlight, among other things, the dilemma for banks, especially those that the Government now owns a majority stake in. On one hand, there’s an imperative to restore financial stability. That means strengthening balance sheets and ditching toxic assets where they can
On the other hand, both the Government and the rest of us are looking to the banks to help us out of this recession, supporting businesses through tough times. Instead, what one hears from the front line is that rates are being hiked up, credit lines withdrawn and no new projects are being considered,
Banks are indeed on the horns of a dilemma but if the all-but-nationalised banks are taking instruction from Government about how to address the problem, that guidance should be transparent. In fact, the remit of UK Financial Investments - the company set up to manage the Government’s shareholding - is contradictory. Its “overarching objectives” are: “To protect and create value for the taxpayer as shareholder, with due regard to financial stability and acting in a way that promotes competition.”
Just as we have a high degree of transparency regarding the Bank of England’s Monetary Policy Committee, shouldn’t we also know more about how the Government is using this multi-billion pound investment to tackle the financial crisis?