Wednesday, 19 September 2012
More banking madness courtesy of Mad Vince
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.