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Give us the tools and we will finish the lending job, says King

Mervyn King has called for more tools to be given to the Bank of England to help stimulate the economy.

King, governor of the Bank, says that changes to the base rate are not sufficient to get banks to lend.

In a speech last week he acknowledged that base rate cuts have helped to tackle inflation but says the Bank must be allowed to do more to get lending flowing again.

He says: “I think the use of the base rate has been successfully deployed in an inflation framework. But what is missing is a range of financial instruments to deal with the banking sector as a whole.”

King suggests the Bank’s existing Credit Guarantee Scheme and Sir James Crosby’s proposals for government guarantees to cover new mortgage-backed securities should be merged.

The Treasury is set to complete a review of the combination proposal by 2009.

Steve Khan, proprietor of The Mortgage Trading Consultancy, says further government interven- tion may be needed to break the lending deadlock.

He says: “You can’t simply get one or two banks to lend, it’s got to be a unanimous thing. What about creating a financial instrument that takes the onus away from banks, such as buying bonds? That, in combination with pressure on lenders and government guarantees, could create an environment where lending could resume.”

But Jonathan Burridge, managing director of Quantum Mortgage Brokers, says banks want to lend but it isn’t possible in the prevailing market conditions.

He says: “It is not so much that banks don’t want to lend, it’s a question of what they do with the assets afterwards. Lenders don’t want to be left with assets on their books that nobody wants to buy.

“Some in the industry are poin-ting fingers at lenders but they are not solely to blame. The entire system is suffering from a lack of confidence.”

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