*Frank van Lerven deplores the banks’ failure to support the industrial and sustainable activities that would boost the productive capacity of the economy and facilitate the required green transition:
“The majority of bank lending is still for non-productive and speculative undertakings, in particular real estate and financial trading, as well as ecologically damaging activities”.
Ten years after the failure of Lehman Brothers brought the global financial system to the brink of collapse the banking sector is still failing to supply the right types of credit to the right parts of the UK economy, despite unprecedented growth in the scale, size and power of the UK financial sector – known as ‘financialisation’. He explains:
“The allocation of bank credit is still fundamentally misaligned with key social and economic objectives, and will not help us tackle some of our biggest and most pressing challenges – like climate change, the housing crisis, inequality, and the productivity puzzle”.
Van Lerven notes that the banking sector is highly subsidised so, “With banks benefitting from a number of guarantees from the government and implicit subsidies, policy makers would be justified in implementing interventions that ensure bank credit allocation activities are more aligned with democratically defined objectives”.
He quotes Richard Partington of the Guardian, “The gleaming towers of Canary Wharf or the City might be potent symbols of free-market capitalism, but they are state sponsored. The financial system is a perversely socialist endeavour. It is the ultimate welfare recipient.”
Credit guidance – a proactive credit policy framework
Credit guidance policies were the historic norm not the exception – imperative to the rapid expansion in post-war Japan, the recent growth of China, the development of East Asian miracles, and the growth of ‘other’ emerging economies. Credit guidance interventions could include introducing:
- a minimal ratio of lending to the real economy (non-real estate),
- credit ceilings,
- credit quotas,
- interest rate ceilings,
- rediscounting ceilings,
- targeted refinancing lines,
- the establishment of public intermediaries to lend to particular sectors.
He concludes: “Ultimately, given the prominent role central banks play in lending to the banking system – and the dependence the former has on the latter – public authorities have the ability to significantly affect the volume and direction of credit flows if they wish to”.
Without financing investment for the productive sectors of our economy, living standards are falling and we are failing to address climate change effectively.
Will any British government have the political will to take such action?