Show us the money
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It says something about the current world that a new economic indicator is about to be unleashed by the Bank of England and it basically tells you whether banks have been doing what they are supposed to do — lend.
The first Trends in Lending report is due out on April 21 at 0830 GMT. Always nice to have a new indicator, but this one may get a bit more attention than would have been the case a few years ago. It 
is designed to provide up-to-date information about bank lending to households and businesses.
Consumer groups, regulators trade bodies, the BoE, the UK government and lenders themselves will draw up the report under the rubric of something called The Lending Panel – which a cruel cycnic might say sounds a bit like a high-interest loan shop.
Clearly, the purpose of the report is to show whether banks have been passing on the ultra-low interest rates that the BoE has been handing out. What do you think it will show?
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It will show what the panel want it to show. Indicators always do at the start, then, when it becomes useful, they will say it’s not realistic and invent a new one. The RPI comes to mind, for some reason. Unless of course there are free public elections of members of the panel, and they are all over career-fostering age.
I applaud the BoE for addressing an issue that, to me, seems entirely obvious. It seems everyone is banging on about ‘money supply’ – but there is scant agreement on exactly what this term means. Everyone assumes it has a meaningful definition – but the term is extremely context sensitive and can easily cause confusion – both in communication and errors of judgement in reasoning.
Measuring lending to specific groups certainly seems to be a major step forwards. If only we could also had a handle of the velocity of that money, we might be able to paint a meaningful picture of the state of the economy.
Of course, there’s an obvious potential problem with this… How do we discriminate between existing debtors re-negotiating (or being forced to re-negotiate) loans to repay existing debts – which, in principle, could make bank lending higher than it should be. We also need a metric for repayment of debt. These figures, in combination, might say lots about our collective solvency.