The public are still paying for the banks to function remotely normally

Is a bank making big money a good thing or a bad thing? It is a good thing if it means they’re repairing their balance sheets and financial health, but can be bad for the wider economy if they are doing so at the expense of lending to hard-pressed customers.

That, broadly, is what has been happening. But in fact they haven’t been hoarding all their money. Much of banks’ improved financial position – still down to massive state aid and lending of one sort or another – is being dissipated through dividend payments and bonuses. They could cut down on those and lend the cash instead, or put it away for a rainy day ahead. This is what ministers want them to do. The banks say that they have to pay divis and bonuses to raise private capital and to attract the right people. If that is true, and to some degree it kind of must be, then that means they are, basically, still bust, unable to function in a competitive global environment without taxpayer support.

What does that mean? Well, either through the costs of doing that, or via lower lending as they cut down on bad debts and concentrate on the most profitable business – we the public are still paying for the banks to function remotely normally. We cannot win, it would seem. The real bite of the credit crunch was postponed in 2008 and 2009 of fear of a 1930s-style slump and is now being played out, albeit at a gentler pace.

The end result will be the same; the reversal of the huge increase in credit and easy lending in the early to mid 2000s. You can call it a necessary rebalancing of the economy, if you like, but it will still hurt, and it will hold back recovery.

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