U.K. Rescue Fails to Spur Bank Loans
5th January 2009 - 14:10
LONDON—A new U.K. lending survey shows banks sharply tightening credit to households and companies, intensifying worries that the government’s £500 billion ($725 billion) bank-rescue plan is failing to get money flowing into the economy.
The report shows banks becoming increasingly conservative in lending practices, reducing maximum credit lines and cutting the size of mortgage loans as a percentage of home values. Banks said they were scaling back mortgage lending even as demand for new mortgage loans remained stable.
The Bank of England’s credit-conditions survey, which covers the period after the bailout plan was announced in October, highlights the difficult balance banks must strike as they try to recover from heavy losses while providing new loans to borrowers. It could also increase pressure on U.K. Treasury chief Alistair Darling to ask taxpayers and politicians to support more financial aid to banks.
Mr. Darling has been considering a number of measures to kick-start lending, a Treasury spokesman said Sunday. “But banks have to understand that with billions of pounds of taxpayers’ money invested, or being made available to guarantees to the banks, the public and businesses are looking for something in return,” the spokesman said.
The options under consideration underscore how regulators and banks still are trying to identify the best formula to shore up the financial sector. One option is to extend government guarantees to the loans banks make to companies, or to the securities into which banks bundle assets, such as mortgage and car loans.
The Treasury also has considered creating a so-called bad bank to buy hard-to-sell assets, or injecting more cash into banks in what would be a second round of recapitalizations, a person familiar with the matter said. The bad bank, though, is low on Treasury’s agenda, the person said.
Prime Minister Gordon Brown, meanwhile, has promised to create up to 100,000 jobs by spending on schools, hospitals, infrastructure and environmental industries, a spokesman said.
In one bright spot, fewer banks said they were cutting back on corporate and mortgage lending in the final three months of 2008 than in the previous three months, suggesting the tightening might be slowing.
