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?
6 comments:
Very like.....
This chart screams out financial crisis. It is not over, is it?
Roy: "It is not over, is it?"
The banks are up to their chins in bad loans and other shite.
They cannot mark it to market or they would be bankrupt immediately.
So the government has decided to make it a public obligation, thus not only are the banks ruined so too will the UK too.
Alice: "It is just that the real economy has been starved of credit."
And this is why we are unlikely to see significant inflation. The money is not in circulation. While the banks are in such dire straights, the money will stay in the bank vaults. The banks are not going to recover for YEARS.
Then (2) employment is falling, people without purchasing power don't buy stuff. If companies can't sell stuff, it (a) doesn't matter what their price may be, they can't sell stuff. By and large companies want to sell stuff, so a company will try anything to sell stuff, including keeping the price down.
And (3) even IF the banks wanted to lend all that cash they have in their vaults, in the current environment, they don't know who is a safe bet to lend to.
Don't worry Alice my lovely, the banks still have £135 billion parked at the BoE.
http://www.bankofengland.co.uk/publications/bankreturn/2009/090624cs.pdf
Good read for Alice fans. The IEA has updated its piece on measuring the economy. At the rate ZaNuLabour are going, we will all be working for the government by 2017.
http://www.iea.org.uk/files/upld-release160pdf?.pdf
dear alice,
this is a novice question but what is a shadow bank?
cheers.
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