‘Banks still not lending’
February 26, 2010 at 2:51 pm
The ramifications of the recession are going to go on for a long time in the banking sector, even if the recession has officially come to an end. Now RBS and Lloyds are being criticised once again, but this time it is not bankers’ bonuses that are causing concern, but their lack of lending.
Both banks have a combined legal target of £39 billion that they must lend by the end of February. But the Committee of Public Accounts has now issued a report claiming that both banks are unlikely to reach this target.
The commitment was made by the two banks in return for the government bailout using taxpayers’ funds. £850 billion was paid out to keep the banks going.
The lending of money to both businesses and homeowners is crucial for the health of the economy. Indeed, it is the reason for the reduced interest rates imposed by the Bank of England and the recent quantitative easing programme.
Following its bailout, RBS committed itself to providing £25 billion in lending for both business and mortgage customers, with Lloyds committing to £14 billion. RBS had to pay more because the government owns an 84% stake in the bank compared to just 43% for Lloyds.
The report is calling for new powers for the Treasury to help it enforce the lending commitments, otherwise they are essentially worthless. The chairman of the committee, Conservative MP Edward Leigh, said that the Treasury “does not seem to know why the banks are not lending,” and that it has “few sanctions available”. It now wants sanctions to be put in place that are enforceable in time for next year’s commitments.
The banks, however, are claiming that it is not their lack of commitment that is the problem, but it is instead the low demand for loans that is preventing them from sticking to their lending levels.
