Government-backed small business loans may have kept many small businesses going in the last year, but they've also been great news for the UK's banks, who have been profiting handsomely from them. In this video I explain how.
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In a 5 minute video you can’t explore the detail but I am not sure it is fair to blame the banks (well, no more than usual).
On one level you could say that they are merely delivering government policy and if they are beneficiaries of that then that is hardly their fault. In any situation there will be winners and losers (eg. Amazon v. Hight Street retailers) and it is the job of government (not Amazon or Barclays) to decide how it might deal with this through taxing the winners and supporting the losers.
Besides, it is not clear that the banks ARE winners. The stock market doesn’t think so with Lloyds and Barclays share prices still languishing well below pre-pandemic levels (by 25 – 40%) and at less than half “book value”. Interest rates at zero for a long period is a nightmare for retail banking in a country where bank accounts are free (if you are in credit). Regulators are preventing the payment of dividends to shareholders for fear of what might happen to their financial position.
Also, it is not yet clear to what extent banks may or may not benefit from the government loan scheme. You rightly identify that credit risk has been shifted to the government but this is coming at the price of lower margins and only time will tell if this is a good deal for the banks. What losses will the government be wearing in a year from now? What losses will the banks be wearing on their existing loan books? We don’t know.
Finally, a single set of accounts do not capture the full picture. Earlier this year banks made massive provisions as things looked REALLY grim. In fact, with furlough, government loan scheme and a buoyant property market the outcome has not been so grim. As a consequence the recent results are flattered by the fact that prior provisioning proved overly conservative.
So, I am first in the queue to give banks a good kicking on some things…. but not on this, YET. I want to see how banks deal with loan arrears and loan refinancing once government guarantees expire before judging whether banks “had a good pandemic”
Fair
But so far, it’s gone very nciely for them, and they know it
Thank you for the analysis. I have a simple question. What is the point of independent retail banks, given your analysis? You made their independence look redundant; a sort of coy veil.
Good point – this policy of small business support could have been executed in a far better manner if we had a National Investment Bank and an equivalent to the old Giro Bank.
Whether that makes a case for wholesale nationalisation of banks is not clear but I think we have seen in many fields policy delivery is sometimes best delivered by private institutions, sometimes by public. The problem is that we have spent the last 40 years destroying public sector delivery and it is now not here in a sufficiently robust form when we desperately need it. We really need a “mixed economy”.
Wholeheartedly agree
And state banks have a rile in that
And NS&I should be offering secure savings and basic accounts on the high street
That was the whole point of the establishment of the Bank of England in 1694 to democratise the creation of the currency after the arbitrary Stop of the Exchequer in 1672 by Charles II. The establishment of the BoE led to the creation of the Country Banks and the huge increase in the volume of the currency mainly through the use of banknotes was a primary driver of the Industrial Revolution.
Neoliberalism, from Big Bang (1986) onwards, eroded and finally destroyed the superb British mutual funds industry, and the ‘raison d’être’ of the ‘jewel in the crown’ of the banking variety of the species, the TSB. Notably, much of the mutual fund industry in pensions, investment as well as banking was not based in London. The City is not a creator, but a destroyer – quite calculatedly in its own interest, which it couldn’t do alone. It needed a neoliberal government to do it.
It wasn’t just the entities that were destroyed, but the culture; the standards, and the skills. That is why we are quite so bereft in adversity now. No standards, insufficient knowledge or wisdom. There is the real loss, and it tells us something about the greed and sheer malign influence of Big Bang; a wolf in sheep’s clothing, and swallowed whole as ‘modernisation’.
Another example of socialism for the rich. Public money that’s added to the national debt being used to bail out many failing businesses and whilst enriching the banks. Capitalism is dead.