Benn Steil


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Should the Fed Follow the Bank of England and Subsidize Bank Lending?

by Benn Steil and Dinah Walker
January 7, 2013


Last week’s Bank of England (BoE) poll of UK lenders turned up some good news: credit “availability” for both households and companies is on the rise – as we document in the upper right figure of today’s Geo-Graphic.  The Old Lady of Threadneedle Street was quick to take credit for the credit: “Lenders noted,” crowed the BoE, “that the Funding for Lending Scheme,” through which the BoE and UK Treasury have since August provided banks with cheap funds to boost their lending, “had been an important factor behind this increase.”

The survey the BoE referred to should be considered about as reliable as LIBOR, which, as we know, has been subject to systematic manipulation by major international banks over recent years.  The indexes of credit availability the BoE has manufactured from its surveys are similarly unreliable, as the banks have every incentive to convince the BoE that FLS is working, and that cheap government funds should keep flowing to them.  Actual UK lending, however, as our bottom two figures show, remains depressed.

Not surprisingly, given tight lending conditions in the U.S (see the upper left figure), Fed Chairman Ben Bernanke has said that he is “very interested” in the scheme.  This has stimulated market expectations that the Fed might try to launch something similar in the United States.  The Fed should hold its fire.

Bank of England: Credit Conditions Survey 2012 Q4
Fed: October 2012 Senior Loan Officer Opinion Survey on Bank Lending Practices
Bernanke: June 20, 2012 Press Conference
Financial Times: Credit Conditions Ease “Significantly”

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  • Posted by Daniel Remy

    The top U.S. banks are cash rich and lending poor. If funds were distributed to the grass roots regional banks who are interested in making loans and are close to the individual businessman and homeowners, the funds would already have been working to stimulate the economy bottoms up. Derivatives and other investment banking interest by the Big 6 banks do nothing for our economy except flow the money around the planet.
    Investment banks, like Goldman Sachs, are aggravating E.U. problems including Greece by making the situation worse by shorting their bonds in great quantities two years ago. GS had a “country manager” to manipulate investments. They are working against American interests for money alone. Our financial gaming abroad is hurting U.S. Foreign Relations.

    Daniel P. Remy, MBA
    Prof. of Economics & Finance

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