Vince Cable compares BOE to the taliban

Graham_Devon

Terrible choice of words, as his anxiety to get the debt piling high again starts to wear him down.

The Business Secretary told the Financial Timesthat capital rules set by the Bank to protect lenders from future shocks were holding back small business lending because they were too tough.

“One of the anxieties in the business community is that the so called ‘capital Taliban’ in the Bank of England are imposing restrictions which at this delicate stage of recovery actually make it more difficult for companies to operate and expand,” said Mr Cable.

“It is clear that the main banks are failing to support good British companies in key areas like exporting and innovation."

The new “leverage ratio” target, which require lenders to hold Tier 1 capital equal to 3pc of their total loan book, has attracted fierce criticism from lenders.

Graham Beale, the chief executive of Nationwide, which fell short of the requirements, warned last month that the Bank's “crude” measure would constrain its ability to lend.

Mr Cable's comments came as data showed that net lending to companies rose in June after months of decline.

Either they want responsible lending or they don't and they really need to make their minds up. This sort of thing is dissapointing from Vince Cable though who, as it turns out, has gone from a really sensible figure head in opposition to just another MP going through the side effects of debt splurge starvation.

http://www.telegraph.co.uk/finance/bank-of-england/10198848/Vince-Cable-criticises-Bank-of-England-capital-Taliban.html

purch

Having a debate on the subject is both good and necessary, but using such stupid and emotive terms such as "‘capital Taliban’ in the Bank of England" will not help the situation.

Vince Cable was a very good opposition spokesman from a fringe party, but has proven time and time again not to be up to actually being a sensible statesman like minister in government.

vivatifosi

I understand his exasperation, but I think there are two key points here.

First and most important, it is ridiculous to compare the BOE to the Taliban. Second he should allow the new governor to get his feet under the table.

ILW

Guy from HSBC (I think) was saying that on average, SMEs are sitting on more cash than borrowings at the moment, it's is largely basket cases that actually want to extend lending.

CLAPTON

Vince once supported the BoE 'independence'; presumably he still does as long as it helps him become re-electable in a couple of years time.

Graham_Devon

One of the biggest issues at the moment, if you believe the reports in the media etc is what ILW touched upon.

The credit worthy don't want to borrow any more at a time when borrowing costs could easily increase in the short term and confidence can flip in an instant due to all the underlying issues here and abroad. That is, in the main, the reason they are credit worthy.

The people who do want to borrow are the higher risks companys. Those that want to expand in todays climate but would likely find it more difficult to cover increased borrowing costs, or indeed have no evidence that they can. Hence why they are less credit worthy.

The government can't keep slamming the banks for not lending, as to do more lending they will have to lend at higher risk. That is one of the main reasons we are going through the problems we are going through.

If the government want lending totals back up, they have to accept the risk and accept the consequences. They have kind of done this with Help to Buy, though they won't even accept there is even a threat of the consequences at the moment.

It boils down to one thing. You can't rely on debt to grow and you can't force debt onto people who don't want it. Therefore something else has to be done or we have to accept what we have.

Seemingly the government won't accept it and won't do anything else. Loading people up with debt is the easy short term solution. Trouble is it means the solution to a debt problem is more debt.

vivatifosi

Graham_Devon wrote: »

The people who do want to borrow are the higher risks companys. Those that want to expand in todays climate but would likely find it more difficult to cover increased borrowing costs, or indeed have no evidence that they can. Hence why they are less credit worthy.

In the main I think your point is correct. However there is evidence from previous recessions (sorry can't reproduce here as I read it during previous recessions) that companies that invest counter-cyclically can have a better upswing. For example they may be able to buy plant at a knock down price due to a cancelled order, or because discounts are higher. Therefore not all companies in such situations should be considered basket cases. While that is an opportunistic purchase, there can be strong strategic reasons for funding growth in a downturn too.

Conrad

Graham_Devon wrote: »

Loading people up with debt is the easy short term solution. Trouble is it means the solution to a debt problem is more debt.

As I've been trying to tell you for several years, regulation became unnecessarily tight. I deal with FSA (FCA) Taliban that are utterly out of touch with the reality of lending, smug and content they are delivering for customers when in fact they've forced millions of perfectly capable adults into renting.

They're a very specific nerdy type, expert in not seeing the bigger picture.

wotsthat

Graham_Devon wrote: »

It boils down to one thing. You can't rely on debt to grow and you can't force debt onto people who don't want it. Therefore something else has to be done or we have to accept what we have.

I'd say it boiled down to the balancing act to ensure that regulation is commensurate with risk. Vince Cable seems to be saying that he thinks the regulation is over zealous and whilst it might be preventing irresponsible lending it's also unduly stifling responsible lending to.

The use of the phrase financial taliban is just a politicians way of making sure the same old story will be picked up by the media. Once he's satisfied with the coverage he'll probably apologise. Next time he wants the story rehashed he'll probably compare the BoE to the SS.

purch

Graham_Devon wrote: »

The credit worthy don't want to borrow any more at a time when borrowing costs could easily increase in the short term and confidence can flip in an instant due to all the underlying issues here and abroad.

I am not sure that is 100% correct. If you take a Loan now, and historically very low fixed term rates you won't be affected by changes in borrowing costs.

I agree with the overall point that confidence and the economy is still on a knife edge, and could change in a very short time, so despite the ability to obtain a low rate for finance, taking on such a commitment is still a big risk that could easily still backfire.

However, history does often show us that those who are the most successful are those that take the risks at the right time.

chewmylegoff

Conrad wrote: »

As I've been trying to tell you for several years, regulation became unnecessarily tight. I deal with FSA (FCA) Taliban that are utterly out of touch with the reality of lending, smug and content they are delivering for customers when in fact they've forced millions of perfectly capable adults into renting.

They're a very specific nerdy type.

You've also told us for several years that we are entering a new age of wealth and prosperity usually evidenced by anecdotes about the leveraged exploits of your latest customer (who has usually performed a 'clever accounting trick' for some purpose). You seem to want to have it both ways - complain about credit restriction whilst telling everyone that the lending taps are firmly on and pouring credit down your customers' throats.