Wednesday, September 28, 2011
The Bank of England on credit
Posted by David Smith at 11:30 AM
Category: Thoughts and responses

Two releases from the Bank of England, one on credit conditions, the other the latest deliberations of its financial policy committee.

Credit conditions first. It said the following:

"The availability of secured credit to households was reported to have increased slightly in the three months to early September 2011. Lenders expected availability to increase a little further in the next three months. Lenders reported that the availability of unsecured credit to households had also increased in 2011 Q3. Availability was expected to be broadly unchanged in Q4.

"The availability of credit to corporates was reported to have been broadly unchanged for large and medium-sized companies and slightly higher for small businesses in 2011 Q3. Availability was expected to remain broadly unchanged in Q4 for corporate of all sizes." That sounds mildly encouraging, except the Bank also said:

"Lenders reported a fall in demand for credit from small businesses and large companies, although demand from medium-sized companies was reported to have picked up a little." The survey is here.

Also from the Bank, the conclusions of the September 20 meeting of its financial policy committee, the key paragraph of which was this:

"The Committee therefore recommended that banks should take any opportunity they had to strengthen their levels of capital and liquidity so as to increase their capacity to absorb flexibly any future shocks, without constraining lending to the wider economy. This could include raising long-term funding whenever possible and ensuring that discretionary distributions reflected any reduction in profits."

Banks should look to the economy rather than dividends or, perhaps, big bonuses. The release is here.