He will propose a “carrot and stick” approach to ensuring that banks maintain lending to struggling enterprises.
1) We all now agree that lending money to people who cannot pay it back is a terribly bad idea. We\’re in a recession (well, not technically, but you know what I mean), there are more struggling companies (this is one of the things a recession means) thus lending should bnaturally fall.
2) We\’re asking the banks to increase their capital reserves. This means that they must, by hte very nature of these matters, lend less.
3) We\’ve as yet not solved the chicken and egg problem. Is lending falling because banks won\’t lend or is lending falling because companies don\’t want to borrow? Given that corporate cash holdings are at a high (must be, this plus household savings is an accounting identity equal to government borrowing plus overseas doobries) it might be that companies don\’t want to borrow.
This though is a good idea:
The Department for Business green paper will also outline plans to revive regional stock markets. The proposals will turn the clock back to 1973, when the regional bourses were merged into the London Stock Exchange. The idea for regional stock markets has been mooted on a regular basis since the early 1970s. It is designed to improve access to finance for smaller regional businesses.
However, it\’s only going to work if there is lighter regulation. Much lighter. I vaguely looked into an AIM listing a few months back. Entirely possible with a good story (and little more needed than that. It\’s a market for those willing to take a punt on an entreprenurial idea) but some £150,000 needed up front to pay for the documentation. To create a vibrant market that needs to come down.
I\’ve long been, in a grossly utopian manner of course, a fan of really local exchanges. Not just one in Bristol, but one in Bath, in Chippenham, Cirencester, Gloucester and so on. If the greengrocer is looking to buy the shop next door to expand, why not an equity market to allow him to raise £30k to underwrite bank borrowings? If localism is all the rage, why not local capitalism to go along with local communalism, local mutuals and so on?
But to work regulation would have to be very light touch indeed. Note, however, that there are such local capital markets, they\’re just very informal and very inefficient. By bringing them to an exchange we\’ll make them more efficient and even a low level of regulation would improve upon the none other than standard commercial law extant at present.