Putting the wind up the lenders

The banks would be insulated from ministers trying to promote pet projects such as ... oh, I don’t know ... wind-farms
David Wighton: Business Editor’s Commentary
When the Government announced it was going to manage its shareholdings in bailed-out banks at arm’s length, the move was widely applauded. Placing the stakes in a separate bucket called UK Financial Investments would prevent taxpayers’ long-term interests being compromised by short-term political pressures, supporters said.
Of course, the shareholdings would be used to promote broad government policy. But the banks would be insulated from ministers trying to promote pet projects such as ... oh I don’t know ... pick one at random ... onshore wind farms.
The Department of Energy and Climate Change must have thought it was nifty news management to put out its announcement about loans for wind farms on the same day that Alistair Darling was beating up on the banks.
Here were Royal Bank of Scotland and Lloyds (and BNP Paribas Fortis for some reason) apparently committing to a £1 billion loan programme for wind farms just as the Chancellor was urging banks to lend more to small businesses. But then, the more RBS and Lloyds lend to wind farms, the less they can lend to other small businesses. And there are rising doubts among alternative energy experts about whether wind is really the way for Britain to go.
The press release looks suspiciously like an attempt to bounce RBS and Lloyds — which both say they are not yet committed to the scheme — though it may be more cock-up than conspiracy.
What the banks are committed to is stepping up overall lending as the price for entry into the Government’s asset insurance scheme. Both are concerned that they might not hit these targets because there will be insufficient demand from credit-worthy businesses. So both are embarking on advertising campaigns designed to persuade companies that the deepest recession since the 1930s is a good time to borrow.
Ministers concede that there is obviously a bit of a demand problem but insist this is largely because the banks are charging so much. To which the banks reply that, while the rates they charge have gone up compared with their cost of funds (though by less than it looks), that reflects the fact that they were charging too little before rather than too much now.
The Government’s threats and monitoring of banks’ lending books may have an impact at the margin. But it is hard to see how it can reconcile the economy’s need for increased lending with the banks’ needs for increased profits.
Sir Win Bischoff, who was duly announced as the new chairman of Lloyds yesterday, should expect a lot of testy calls from ministers, and not just about wind farms.