Make no mistake; bank credit is growing rapidly. It is just that the real economy has been starved of credit.
So, who is getting all the new loans? It is the shadow banks. According to the latest data from the Bank of England, growth rate of bank credit to "other financial institions is up 50 percent year-on-year. The flow of new loans slowed a little in May, but it still amounted to almost ₤3 billion.
However, here is a curious thing. Since the crisis began in the summer of 2007, cumulative lending by UK high street banks to the shadow banking sector is now approaching ₤400 billion. That is approximately the same amount of mark-to-market losses that the Bank of England estimated that UK banks have suffered since the crisis began.
Could there be a connection?