Ye cannae expand lending and capital at the same time Capt\’n!

Barclays and Nationwide, which have both increased their net lending to the economy this year, are facing the threat of being forced to raise more capital or sell off loans to meet a new “leverage ratio” target.

For Barclays the impact of the surprise measure, were the bank to have to meet the 3pc ratio by the end of the year, would to force it to raise as much as £8bn in fresh equity or shrink its assets by £280bn, according to analysts at Nomura.

Schizophrenia in banking regulation.

Yes, we\’d like you to lend more. Which is great, just fine.

Oh, by the way, we\’re also going to force you to hold more capital against your extant loan book. Which is fine, just fine.

But it\’s damned difficult to do both at the same time.

Sigh.

Have we ever had a period of joined up government?

 

4 thoughts on “Ye cannae expand lending and capital at the same time Capt\’n!”

  1. To politicians, banks are lovely when they want them to help reinflate the credit bubble (sorry, that should read “increasing lending to businesses and people trying to get on the housing ladder”).

    To politicians, though, teh banksters are evil and must all be locked up and then from their cells find the capital required to Stop This Happening Again (for a while).

  2. As you say, there is no joined up thinking.

    We have the funding for lending scheme, allegedly to boost lending and economic growth and to help small businesses and the self employed. The reality is very different.

    We are giving the banks massively cheap money and then telling them they have to improve their capital ratios. They do this by reducing the size of their loan book and not lending to anyone who is looking to start a business.

    The banks are using the funding for lending scheme to improve the margins on loans that are safer than houses – the only loans our banks are prepared to make. Anything at all risky, according to their computer software which calculates such things, is not going to receive a loan. As an example Halifax, part of a bank we own, will not lend to the self employed unless they have at least a year’s track record of self employment, irrespective of the size of loan. A 6% LTV mortgage was recently turned down on this basis. Not exactly a high risk with 94% equity in the property.

    It’s a complete mess.

  3. The crunch was caused by excessive and irresponsible lending, so getting banks to lend more makes perfect sense (if you’re schizophrenic). And just to make sure the next crunch comes sooner rather than later, George Osborne is refusing to accept the Vickers recommendation that bank leverage be raised from 3% to 4%. The fact that the Tory Party is funded by criminals – I mean bankers – is of course entirely coincidental.

    However, the call for better capitalised banks does make sense, and one way of doing that is to force depositors to become loss absorbers. As Mervy King recently pointed out, depositors at mutual building societies are effectively shareholders, so that’s not a revolutionary idea.

    And as Merv also recently pointed out, the idea that depositors should take a hair-cut when a bank fails was the conventional wisdom in the early 1990s.

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