A path strewn with difficulties

January 19, 2009

An old Chinese proverb states that it is better to take many small steps in the right direction than make a giant leap and fall back. Judging by the number of bank lending initiatives announced over the past three months, British policymakers are taking this to heart.

On Monday, Britain announced no fewer than eight measures to kickstart lending in its credit-starved economy. Despite pouring 37 billion pounds of public money into major banks last October and pledging hundreds of billions more in guarantees, the government had to admit it needed to take more credit risk off banks’ books.

Monday’s package is designed to be comprehensive.  It includes — amongst other things — a fund to allow the Bank of England to lend directly to businesses, a framework for boosting the money supply if needed, a guarantee scheme for asset-backed securities and the offer of insurance against potentially explosive losses.

None is a silver bullet and the devil will be in the detail. Much of the nitty-gritty of how these measures will work is still not known. 

 It is also likely to be a slow process. The Bank of England’s 50 billion pound asset-buying pot is one of the few measures to take effect immediately.  Analysts at BNP Paribas calculate this equates to just 2 percent of bank lending in Britain compared to a ten percentage point drop in lending in the last year.

One opposition politician, Vince Cable, likened attempts to kickstart bank lending in Britain to “giving a kiss of life to a corpse.” Colourful. But a revival in bank lending is indeed by no means assured. More steps may yet be needed.


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An astute piece. A core problem is that the Banks themselves don’t know the extent of their losses, so how can investors have confidence in their balance sheets? This fact means that the Government, with this latest insurance scheme, is again writing a blank cheque to the Banks on behalf of the taxpayer.

Posted by David Clarke | Report as abusive

Funny this but after recent months of everybody insisting that the banks caused the current UK crisis I heard Alistair Darling (Labours Chancellor)make a statement on the Andrew Marr show this morning to the effect that people must realise that it was not the banks that caused the crisis but profligate spending and borrowing and that the Government would get all the monies back!
He did not specifically say who was responsible for the profligate spending or borrowing and went on to say that Labour did many good things during their term of office and one was left to make one’s own judgement.

I got the impression from the discussion that it might have been Mandelsons book that is causing the truth to previous spin being owned up to.

Posted by GROCK | Report as abusive