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Banks Putting Economic Recovery At Risk, Bank Of England Warns

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http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8198049/Banks-putting-economic-recovery-at-risk-Bank-of-England-warns.htmlhttp://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8198049/Banks-putting-economic-recovery-at-risk-Bank-of-England-warns.html

Since the credit crisis began, high street banks have lent less to customers, blaming a fall in demand for new loans, mortgages and other types of credit.

However, in a research paper today, the Bank rejects that argument and says that demand for new loans has not shrunk by as much as lending has been reduced.

Instead, by restricting access to credit, banks are threatening to “dampen the recovery”, the study says.

The credit shortage has also allowed banks to increase the profits they make on loans, by raising the “mark-up” that they charge consumers.

The report is likely to stoke political anger in Westminster. George Osborne, the Chancellor, told the House of Lords’ economic affairs committee this month that “credit conditions are right at the top of my watch-list”.

He has already tied the bonus arrangements of the incoming chief executive of Lloyds Banking Group to lending targets.

Vince Cable, the Business Secretary, has repeatedly demanded that banks help to aid the recovery, noting that “conditions, rates of interest and demands for security” on loans had been so “onerous” that companies “don’t ask any more”.

In the most comprehensive study of credit since the financial crisis began, the Bank says in its Quarterly Bulletin today: “Overall, the evidence suggests that the cost of credit rose sharply during the financial crisis, and that there was a reduction in the availability of credit, both for households and companies.”

It adds: “It is likely that tight credit supply played a role in driving up the cost of credit.”

The research builds on a previous Bank study that found lenders were charging a “mark-up” on personal loans and mortgages that was “substantially higher now than before the financial crisis”.

Although this rise in the “mark-up” was not quantified, the rates that banks charge for their funding costs have been on a rising trend for the past 18 months, increasing by about three quarters of a percentage point on average.

If the credit rationing continues, the banks could imperil the recovery, the report says.

The Treasury is gambling on a massive increase in business investment to put Britain back on a stable economic path and create 1.1 million new jobs over the next five years.

But the Bank notes: “Weak lending is more likely to dampen the recovery in activity. For example, an increase in the cost of credit would push down investment spending.” Lenders are rationing credit

BOE quarterly report

[311-319 Understanding the weakness of bank lending]

Conclusion

Bank lending to UK households and businesses weakened sharply following the start of the global financial crisis in mid-2007. While it is difficult to disentangle the factors driving weak bank lending, the evidence discussed in this article suggests a significant role for a persistent tightening in the supply of credit, independent of changes in credit quality and Bank Rate. In part, that is likely to have been a reaction to the unusually loose conditions that existed immediately prior to the crisis. Credit demand is also likely to have weakened during the recession, weighing on bank lending. That is consistent with reports from the Bank’s Agents.

Overall, the analysis in this article suggests that the weakness in bank lending since mid-2007 reflects a combination of

tighter credit supply and weaker credit demand. Qualitatively, tight credit supply is likely to have been the dominant

influence. For example, independently weak demand would typically be associated with lower spreads on loans, rather

than higher spreads. And it is not consistent with the switch into capital market issuance by some PNFCs during the

financial crisis. But it is difficult to assess the relative contribution of demand and supply more precisely.

While there is some evidence that credit supply conditions have improved somewhat since the peak of the financial crisis, especially for large companies with access to capital markets, constrained credit supply continues to be one of the main factors holding back the economic recovery. The Bank will continue to monitor developments in bank lending and the banking sector closely.

Unusually loose conditions = the new normal to aim for evidently.

Edited by rented

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http://www.bbc.co.uk/news/business-11979894

About 22% of people said they were put off spending because of concern that it was becoming harder to borrow, up from 16% a year ago.

From the BBC. Got to love this says it all about our economy really people are put of spending on pointless stuff because they can't borrow. How about saving the money before you spend it? Too radical?

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http://www.bbc.co.uk/news/business-11979894

From the BBC. Got to love this says it all about our economy really people are put of spending on pointless stuff because they can't borrow. How about saving the money before you spend it? Too radical?

As we know on HPC, one person can 'save' only what another has previously borrowed (physical cash excepted.)

Ain't debt-based money wonderful.

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As Eric keeps saying, it's all down to liar loans and LOANS LOANS LOANS.

Complete idiots pushing prices up for everybody because they can take a loan out - I hope the banks NEVER return to previous lending practices else it will be disaster.

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http://www.bbc.co.uk/news/business-11979894

From the BBC. Got to love this says it all about our economy really people are put of spending on pointless stuff because they can't borrow. How about saving the money before you spend it? Too radical?

That's the problem all right. Until most of the population even realise what you've said isn't ludicrously obvious common sense we'll remain screwed. I'm not hopeful.

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As Eric keeps saying, it's all down to liar loans and LOANS LOANS LOANS.

Complete idiots pushing prices up for everybody because they can take a loan out - I hope the banks NEVER return to previous lending practices else it will be disaster.

It would be interesting to know what the inflation rate would have been if all of this imaginary money and wealth hadn't been created.

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As we know on HPC, one person can 'save' only what another has previously borrowed (physical cash excepted.)

Ain't debt-based money wonderful.

Wonderful? Yes - it's a system which can grow or shrink with supply and demand of the market.

That bad risk is papered over and that the government encourages malinvestment through poor taxation, are both issues though. They can feed imbalances and promote (relatively) risk free rent seeking activities.

If you lend someone money (including a bank) you may not get it back. If the government rewards investment in an asset class, we can expect a bubble to form.

IMO, it's all about risk and balance, both of which are sorely missing in many economies.

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All mouth and no trousers.

Turner implementing pro-cyclical measures whilst talking about counter-cyclical measures for the 'future' is a problem.

Just shut down the f*cking FSA and let the BoE run the banksters directly as it used to. If they won't play ball take away their licence.

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Wonderful? Yes - it's a system which can grow or shrink with supply and demand of the market.

That bad risk is papered over and that the government encourages malinvestment through poor taxation, are both issues though. They can feed imbalances and promote (relatively) risk free rent seeking activities.

If you lend someone money (including a bank) you may not get it back. If the government rewards investment in an asset class, we can expect a bubble to form.

IMO, it's all about risk and balance, both of which are sorely missing in many economies.

I should have specified commercially issued, debt-based money.

Demand-driven flexibilty of the money supply is, I agree, of value.

My preferred mechanism for this is reverse auctions of publicly issued debt-based money in which commercial primary borrowers compete for the money by submitting their IOUs. This would also facilitate the free market setting of interest rates.

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The BOE rate is very relevant. It is accomplishing 3 major goals which are keeping the economy ticking over:

1) it is increasing the banks margins so they can make large profits and stay afloat

2) it is massively increasing the expendable cash in tracker mortgage holders wallets, thus allowing them to spend more.

3) it is putting people off saving their money in the bank thus encouraging spending through fears of the value of their funds being eaten away by inflation

Higher rates would do the opposite:

1) banks margins would drop

2) tracker mortgage holders would have much less to spend

3) people would start saving instead of spending.

I'm not saying that low rates are necessarily the right thing but I am enjoying them as my mortgage payments are tiny. Western countries have nailed their colours to the mast and anybody expecting rate rises soon is going to be disappointed.

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  • 284 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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