Wednesday 19 September 2012

More banking madness courtesy of Mad Vince

Regular readers will know that we hold no candle for VInce Cable here. Either in person, as an MP or in Government Mr Cable has shown little aptitude for anything except misguided thinking and politicking.

The latest idea being bandied about is a state backed business bank. Already there are plenty of calls for this to be scrapped as an idea. The IPPR reckon it will add too much to the deficit (funny they are less worried when its Labour's plans but anyway...).

The big issue for me is that the UK already owned more than 20% of the Banking sector, Northern Rock bits in run off, 85% of RBS, 43% of Lloyds (which itself absorbed HBOS). With all this in state hands why on earth is there a need for a new channel to market.

Moreover, the reasoning sounds very strange to me. Banks will only lend to good credits and these do not include some businesses that the Government wants to encouraged - that would be because the market thinks they are bad credits then? It'sis that thing called capitalism where a market tells you the real state of affairs and you can't buck them. The best case will therefore include this business bank running up big losses on its loans in all likelihood.

With all the QE in the economy I struggle to believe there is a lack of credit - certainly the bankers I speak to do not see this. they just see a big deleveraging of their own and their customers balance sheets. Which is what we want, private sector borrowing which is unsustainable high to come down.

Then we have the small issue of UK Corporate balance sheets being awash with cash - yet this is not invested? There are lots of ways to encourage this, but it is not through setting up a business bank. If you want investment, increase capital allowances reliefs and taper taxes for new business start-ups.

As ever, a Government is obsessed by debt, so much so that it sees not other solution than more debt. This idea is without merit and understandably therefore is a key policy idea of Vince Cable.


Bill Quango MP said...

All three parties committed to a people's bank idea pre 2010. All three leaders mentioned this in their debates and in their manifestos.

The idea was roughly to use the rump of northern rock, some 70 branches. The headquarters and back operations staff and management. Then to link this to the post office network's 12,000 branches to create a truly local bank that hasn't existed in the country for decades.

Government would control the banks. So loan rates could be set. Better savings rates offered. Longer term bonds and so on. Also gov was keen to promote small business, so could dispense those small £10-£50k startups that banks won't touch.
Plus it would be used for all the wonk thinking so beloved of governments. Green investments. Eco loans. A way of reducing the public sector by using the private network to pay benefits and so on.The PO already being equipped with a working £1bn government work IT system.

Problems emerged. The monopolies commission and EU regs on state investment {now largely ignored anyway .} The other banks would have kicked up a major storm with a competitor with more branches than all the existing banks put together.
But as they were really on the line in 2010, they could have been forced to accept.

But the real stumbling block was cost. Some £2bn to set up. And probably another £1bn in associated contract terminations. was all shelved and the weak business bank and green investment bank and probably the disabled/poverty line/agriculture/nurses and associated buzzword banks will come in due course.
{Probably just a website with a £100m stuffed into a budget}

Sebastian Weetabix said...

It only makes sense if you have an industrial policy. Take South Korea. They decided many years ago they wanted to develop an indigenous car manufacturing industry. No sane bank would provide cash to such a long-term patriotic vanity project, so the ROK government provided funding to make it happen - with some success, it must be said. They did the same with the electronics industry. Which brings me to Vince's plan. He wants to back pharmaceuticals and aerospace, inter alia. But these industries are already very strong in the UK and don't need that kind of government backing. And if he did, we'd most likely be in breach of WTO rules regarding subsidy. So why bother?

If, on the other hand he thinks the wicked banks aren't lending to SMEs then why doesn't he just order the state-owned banks like RBS to do so? However...speaking for our SME, we have no appetite to increase our borrowings. The outlook is very uncertain, there are huge systemic risks, so we have been paying down our debt, reducing our risk, and paying more-careful-than-usual attention to cashflow. I daresay that is a common stance.

We also had some schizophrenic treatment from the bank. On the one hand our "relationship manager" wanted us to take out a large loan but at exactly the same time the local branch reduced our overdraft facility. Hmm.

BrianSJ said...

"This idea is without merit and understandably therefore is a key policy idea of Vince Cable."
Perfect. Just perfect.

Anonymous said...

So, I have £2Bn to invest somewhere on the planet and to be honest I don't really need a UK govt handout but I would take it. But I want a return within 5 to 6 years. Can Mr Cable tell me where in the UK and in what I can achieve this goal?

CityUnslicker said...

Roger I ahve many ideas for this money, really that is enought o get started with. Why don;t you buy all the Government office they are selling on Whitehall - these will make a mint.

James Higham said...

Let's make him Chancellor and be done with it. I'll buy my ticket out now while we're waiting.

john in cheshire said...

Mr Cable should stick to cum dancing.