High street banks would pledge to increase lending to small businesses and home owners by more than £200 billion under the terms of a secret deal that would pave the way for them to pay out billions of pounds worth of bonuses.
As a broad brush thing, there\’s two types of banking. There\’s commercial and investment.
Commercial banking is about parcelling up deposits on which you\’re paying one interest rate and lending it out again at a higher rate. This lending (and indeed the deposits) can be from and to individuals, companies, even governments.
Commerical banking is a deeply unsexy activity: it\’s also one that doesn\’t in fact pay these huge bonuses which everyone obsesses over. Yes, even in investment banks there are commerical bankers who, say, deal with Marks and Sparks overdraft needs, but they\’re very much the poor boys of the organisation.
Investment banking is about playing with markets: anything and everything from the commercial paper markets (where M&S more likely funds its overdrafts) through longer bond markets, equities, currencies, all the way through to exotica like catastrophic insurance bonds, bonds based on the song royalties of David Bowie and bundling up crap mortgages to make AAA bonds.
It is investment bankers who, on the occasions they get it right, who make the big bonuses. Especially in this Anglo Saxon system that we have.
For, in very large part, commercial bankers don\’t handle enough money to make that 50 basis points skim add up to a hefty bonus. Almost any UK company or business, if it wants £100 million or above, is going to use the markets to get it (and much smaller amounts in commercial paper) rather than a loan from the bank manager.
So in this announcement from the government we\’ve got a deliberate \”don\’t look at the man behind the curtain\” moment. It isn\’t \”the banks\” which must lend £200 billion to UK companies. It\’s the commercial banks which must: but they\’re not the same people as the investment banks which are getting the £7 billion in bonuses. It\’s like telling the truck drivers that they must make more deliveries so that airline pilots can get higher pay.
Hey, they\’re both in transport/banking aren\’t they?
But what\’s worse than this Wizard of Oz thing is that most of those (\”most\” advisedly, for there will of course be politicians too stupid to realise this) in government saying all of this know damn well they\’re talking crap. It\’s just that they\’re sure that the vast majority of us out here don\’t get it.
And thus they posture and preen, are seen to be doing something, when there is just about no relationship at all between either of the perceived problems, lack of bank loans for businesses and bonuses in The City, and the solution they\’re offering.
And people say that I\’m a cynic about politics and politicians: you don\’t know the \’alf of it mate.