BBC News

Short version. Two (or was it three) times before, our esteemed Chancellor has loaned banks a massive lump of our cash at preferential interest rates on the basis the banks would then loan it on to business to promote growth and create jobs. And... the banks didn't loan the money on to business. They kept it, or more accurately invested it in other schemes that would give a higher return, leaving business to flounder while they profited.

So this time our esteemed chancellor has put in place The Funding for Lending Scheme, which involves (and this is slightly complicated, so I need you to concentrate) loaning the banks a big lump of our cash at a preferential interest rates on the basis that they would then loan it on to businesses. And what happened? You may want to sit down at this point, because this bit is quite hard. The banks... kept the money! Amazingly, they did exactly the same thing as they had done the last two (or was it three) times our esteemed Chancellor gave them a big lump of money!

I know, shocking isn't it.

You know what is shocking? £16.5 billion of government money sitting on bank balance sheets earning them profits while businesses all over the UK can't get the finances required to grow and create jobs and do all the things our esteemed Chancellor has been promising they were going to do for about the last three years.

The quote "to repeat the same action expecting to get different results is a sign of insanity" is often attributed to Albert Einstein, although there's no direct evidence he actually said it.

The problem is that all the banks have lousy balance sheets. Though some have balance sheets that are worse than others. They are very risk averse right now, and business lending is very risky compared to simple mortgage lending even if housing is still overvalued. Most businesses are facing a stagnant market right now. Also banks are demanding ridiculous terms on business loans so it is unsurprising that business lending is down.


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Here is a shocking idea, why don't they just give out the loans themselves, directly to businesses?

Oh no, the government can't get involved in private finance. You may point out the government effectively owns one bank and large parts of a few others, but that's an entirely different thing.

They could break up the banks that they hold and create new banks with new remits of no mortgage lending and let them see what they can do, plus bank branches are being closed all over the country. Make the build their own branch network and take it from there.


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