Monday, 13 October 2008

Government sets credit growth targets for failed banks.

Today's government cash injection now requires UK banks to maintain "over the next three years, the availability and active marketing of competitively-priced lending to homeowners and to small businesses at 2007 levels."

The most obvious interpretation of this statement is that credit growth over the next three years should be at same rate as in 2007. Well, despite the onset of the credit crunch, lending to individuals increased last year by 9.5 percent. That should be more than enough easy money to reflate the housing market.

It can not mean that banks should maintain the stock of outstanding debt at the level it was at the end of 2007. Even though banks have tightened up on credit to individuals, it didn't stop growing. Again, despite the credit crunch, the stock of outstanding loans to individuals is higher now than in December 2007.

With the economy likely to slow in the coming year, a 9.5 percent credit growth rate would require a significant increase in private sector indebtedness. In the words of the CML, that would be "neither prudent nor desirable".

4 comments:

CityUnslicker said...

Politics is a dirty business; buying votes..

Nick von Mises said...

"over the next three years, the availability and active marketing of competitively-priced lending to homeowners and to small businesses at 2007 levels."

Sounds like the banks can easily keep to the letter of that without lending many people money. Now they are public sector they can probably bring in some NHS managers who can show them precisely how to deliver zero while still hitting all targets.

Mark Wadsworth said...

That's socialism in a nutshell, if something clearly doesn't work, then just keep doing it.

CWS said...

By Christmas, Comrade Brown will be announcing the five year plan. It is amazing how these old socialist ideas have been recycled.