Leader: A lethal game of chicken
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There’s a game of chicken going on, and this time it doesn’t involve two cars careering towards each other along a sleepy suburban road at night. In fact, the consequences could be far more devastating because this game of chicken is between the Bank of England and big lenders.
In April 2008 the government threw the lending industry a lifeline in the form of the Special Liquidity Scheme and the credit guarantee scheme.
As a result more than £300bn is owed to the Bank from both schemes, and starting next year it will be asking lending institutions for its money back.
But at a time when many lenders are struggling to stand on their own two feet and keep lending, the effect of this could be devastating.
We have two big industry entities - the Bank and lenders - rushing headlong towards each other and the question on everyone’s lips is which will blink first.
If you imagine the banks to be cash-strapped consumers they effectively got a secured loan to keep the wolf from door in 2008 and 2009, and were told that in 2011 the debt collector would come knocking. But in this case, if they have to start paying back their government debts the first thing lenders will pull back from is further investment in all our mortgages.
So the Council of Mortgage Lenders is calling for either an extension of the 2011 repayment date or some sort of transitional arrangement.
When funding and competition is already so tight - we’ll be lucky to see £150bn in gross lending in 2010 if the first five months of the year are anything to go by - the consequences of the Bank and lenders colliding are too scary to contemplate.
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Readers' comments (1)
Bob Jones | 17 Jun 2010 5:58 pm
Here's an idea! Why don't lenders raise the interest rates on bank accounts - that would get a big injection of cash into the coffers - oh no wait, that would mean mortgages rates would go up too and more people would default on their mortgages - can't be doing with that. The lenders are probably right, it's best to go begging to ask for another tax payer loan! Except the credit agencies have got their beady eyes on the UKs debt, I guess an extra £300 billion 'permanent' debt on the governments balance sheet wouldn't look to good for our AAA rating. Which would mean higher interest rates - higher interest rates it is then!
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