More pertinently, a full-blown state lending bank – which the Business Secretary seems to be edging towards – would be illegal under EU law.
That is a point I hadn\’t considered.
You can have a state owned bank, that\’s obvious. But in order not to be providing illegal state aid lending decisions must be made on a fully commercial basis.
The definition of fully commercial basis pretty much being \”would the loan be made by a non-state bank?\”
At which point there\’s not all that much point in having a state owned bank, is there?
The definition of fully commercial basis pretty much being “would the loan be made by a non-state bank?”
Not necessarily.
A better way of looking at it would be ‘would the loan be made by a non-state bank in the same financial position as the state bank’ – as long as the new state bank is adequately capitalised one can argue that its perfectly reasonable for it to operate a less risk-averse lending policy than private sector commercial banks because its not having to service anything like the same levels of debt or rebuild it balance sheet.
The same would also be true, of course, of a new private sector entrant into the business lending market or, indeed, an existing bank that had come through the recession in better shape than its rivals. As long as is has the capital it feels it needs to sustain the risk then there’s no reason why it shouldn’t operate a more expansive lending policy.
Now, if it were found that the state bank were offering loans at unduly preferential interest rates, then that could well be interpreted as an unlawful state subsidy but, otherwise, as long its lending policies and interest rates are reasonable in terms of what a private sector bank would offer were it in the same financial position as the state bank then there shouldn’t be a problem.
How do you determine what a “fully commercial basis” is though ?
“We are investing £200m in this steel foundry in the deputy Prime Minister’s constituency on a fully commercial basis”. And throw out a few spread sheets with ludicrously optimistic scenarios to back this up.
What Unity said. Also, state subsidies are allowed as long as they meet defined social goals and are made available transparently and fairly – the suggestion that they aren’t is a ridiculous Euromyth.
You can lend business money cheaply in exchange for, say, creating jobs in South Wales – you just can’t lend that money only to Dai Jones Ltd and refuse to lend to Pierre Duval SA for their proposed Welsh factory.
Not forgetting that business lending is not without risk.
State bank lending to business, the business does badly because the person in charge does not understand how to run a business – so is the taxpayer then liable for the debt?
The big banks lend to a good portion of those businesses applying for loans by all accounts. Well over half.
So who will end up applying to the state bank? Those who can get a loan from commercial bank? Or those who the commercial bank feels are too risky?
Come to think of it, if the state bank sets criteria like ‘must show a profit’; ‘must have been trading x time’; ‘must provide assets’ – will not the media have a field day with those turned down by the state bank?
‘New state bank rejects higher percentage of loan applications as commercial banks’…..?
This is all insane. Just because the government can print money and lend it at a profit, it doesn’t mean it should. Doing so will inevitably destroy the economy.