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Banks told to lend or risk state control
Paul Waugh, Deputy Political Editor25.11.08
BRITAIN'S banks risk wholesale nationalisation if they continue to squeeze lending to businesses, the Bank of England's Governor declared today.
Mervyn King hit out as he warned the country was facing a “long and hard path” back to balance the public finances, in the wake of Chancellor Alistair Darling's massive borrowing splurge.
Mr King also predicted that cuts to VAT would lead to temporary deflation in Britain for the first time in generations, with the retail price index going negative next year.
But in evidence to the Treasury committee in the Commons today, he said the “single most pressing” issue was the need to get credit flowing again.
Asked by Labour MP Andy Love if he had ruled
out “wholesale nationalisation” of the banks, he replied: “In time of financial crisis, it would be a very serious error to rule out measures which may ultimately prove necessary. It would be an extremely brave person who ruled anything out.
“It wouldn't be our first option, but remember: the Government now has a majority holding of shares in more than one bank. The United States has just acquired a very significant stake in Citibank, the biggest bank in the world.”
Unusually, Mr King also issued a clear signal that the Bank of England was ready to slash interest rates further and deeper than necessary, partly because commercial banks were building a “wedge” between their own rates and the Bank of England one.
“We will take whatever action is necessary on interest rates to steer the economy back to calmer waters,” he said.
His remarks came as the Treasury, Bank of England and Financial Services Authority issued a plan to monitor the lending practices of institutions.
And a Treasury report warned net new mortgage lending is set to drop to zero next year.
The Governor backed Mr Darling's £20 billion gamble to drag Britain out of recession, saying the measures in yesterday's pre-Budget Report seemed “perfectly reasonable” given the “extraordinary circumstances”.
He warned further banks may have to be recapitalised with public funds, while those currently receiving cash may get more.
At present the £37 billion bailout scheme applies to Royal Bank of Scotland, LloydsTSB and HBOS.
Reader views (19)
I am disabled with an income of benifits given to me by the goverment and garanteed for long term payment. My house is valued at £250,000 and i owe just under £130,000 yet my money is garanteed from the goverment because of my disability and my ltv is good and my credit rating is fair yet the goverment helped the banks but the banks still wont help the people like me with a remortgage even though their money is secured from the goverment and they have a pool of money to borrow from the goverment to lend on hundred of disbled people are like me and are wanting remortgages the goverment should set up its own bank to make huge profits and return it to the tax payers in different ways the banks have had it their way to long and its time for the goverment ie Gordon brown to intervene as Robin Hood the man who will put great britain back on the map and the word great back into the hearts of the british people.
- Andrew Caldin, herts
Forcing banks to lend is one thing but how can you force borrowers to repay? Let's face it Nulabour is not very good at understanding money; mind you it's not their money so I suppose they think it does not matter!
- Stevew, WMids
Nationalise the banks now put the money to help all not just the share holders
- Tony, Bromley England
The last time there was a wholesale nationalisation of banks was in Russia. Would you live there?
- Dan, Manchester
To Mike in London. Mervyn's warnings about overvalued property are plentiful. He has been warning about over-inflated house prices for four years. He is the last person to blame for this mess when Brown created the FSA implicitly to weaken the Bank of England and take away its ability to restrict commercial banks aggregate lending. Brown is the culprit as he encouraged high levels of debt by decimating people's disposable income and forcing them to borrow ever more just to keep living in our over priced world!
- Mark, London
It doesn't matter, these British banks are bankrupt anyway. They have no money to lend. The UK can now only survive by borrowing grotesque amounts of money from the rest of the world. They can never pay this money back as the UK was running large deficits in the boom. What hope is there of paying double that debt now going forward? Forget jobs and taxes from the financial industry - they are laying off hundreds of thousands of employees and will not re-employ people in the UK when economies pick up. What will replace this? Hairdressing? I don't think so. You can be sure foreigners who will lend to you will exact heavy demands. Public interest D Holland? Forget it....the UK will pay a very high price to continue spending money they don't have - mostly repaid for by your children, if that means anything to you. Bankruptcy is surely on its way because one thing is certain - debt always remains and always needs to be paid back no matter what else happens...
- Kr, Florence ITALY
The Government has the banks exactly where they want them. They have to respond to Gordon's demands or face a slow death. Great news.
- Keith Price, Luton, England
My earlier comments were never printed. I'll try again: Forcing banks to lend is what started this whole mess.
- Trunk, US
David Holland, what world do you live in? I'm sorry but last time I heard the banks' responsibility was to their shareholders and creditors (ie. depositors) not the public. If the Bank of England and the Government believe so vehemently that lending should continue at the same irresponsible levels as previously why don't they do the lending themselves (out of their own pockets - not with my tax money thank you!)
- Barry, London
I for one would welcome nationalisation of our banking industry it would be just desserts for the many fat cats who have milked it for long enough at the expense of us the customer.Their disgraceful system of charges is reason enough on its own to take such action.
And while the government is at it don't stop there do the same to our once great rail network.
- Peter, Darlington England
Mervyn King is responsible for the Northern Rock fiasco (he should have supported Lloyds TSB in its proposals), not starting to reduce interest rates till last month (he still thought inflation was the problem!) and for throwing away £37bn at the banks when they should have been nationalised and all future borrowing given a state guarantee (the banks would then be less fearful of lending to each other). I believe he lacks principle in not standing up to or he is wrongly advising the Government. He is supposed to be independent.
- John, London
The key thing to this is if you hold the threat up you are going to have to use it.
- Stuart, Luton, UK
Yes its time the Bank of England and the government act to protect the country from these greedy bankers and nationalise the likes of Barclays, RBS, HBOS & Lloyds. All the bailouts and taxpayers money poured in is used to boast the share price for the benefit of the shareholders and bank bosses, not for the customers. So Mr. Brown, please do the right, moral thing and be brave. Nationalise the lot of them.
- George, London, UK
Not before time.
The banks should meet public needs and the only way of ensuring that they do this and do not prioritise bonuses and profits is through public ownership.
- David Holland, London UK
Looks like Barclays did the right thing!
- Sandy, London
Hello banks, Dublin looks good as a relocation centre-or Luxembourg.
- A Moreno, Luxembourg
I was staggered to hear the words leave Mervyn King's lips, that near to the expiry of the temporary reduction in VAT, people will accelerate buying. Statements of this nature demonstrate the desperate straights these people will resort to, to do this poor excuse for a government's bidding. They have all acquired the same disease - "buy one and you get two"
- Bingham Macnamara, lymington, uk
I think some of this 'Largesse' should be spent on a 'make-over' for Mervyn, he looks like a crazed academic who's about to give a geography lesson. Secondly and only slightly more important, how can you make banks lend to people who cant afford to pay it back. Deja Vu comes to mind.
- Colin Bond, London
What was Mervin King doing when house prices were going up 20% a year and banks were offering 125% mortgages.
Answer: Nothing
- Mike, London
