Alistair Newton here. We are watching governments across the world pouring ever growing amounts of their shrinking funds into their global and domestic banking groups, to support their very existence and keep the lifeblood of the freemarket economies flowing. However, many banks have simply taken this funding and regressed to short-term survival mode – little of this funding is flowing out from the banks and most is being retained to maintain capital ratios, stabilize the banks and in some cases enhance their opportunity to acquire other banks.
One could argue vehemently for one approach over the other. However, it is clear that we are now seeing the first signs of those governments demanding a return on that investment, placing pressure on the debtor banks to open up the lending markets and allow consumers and corporates wider access to credit, with a view to stimulating spending within the economy.
Will banks accede to these demands ? It is difficult to paint a clear picture. We have seen some early movers, most notably the Royal Bank of Scotland Group in the United Kingdom, who have recently committed to keep credit lines open to corporate and SMB customers at the levels in place before the crisis kicked in. However, public moves from other banks have been few and far between.
So what happens if banks don’t follow the advice of their new shareholders ? Let’s envisage a scenario whereby the government starts to bypass the banks and injects funds directly to individuals, not through tax breaks or social security refunds, but through peer-to-peer (P2P) lending sites. Stretching the imagination maybe, but not as implausible as it might sound. Simply pumping cash into banking groups offers no guarantee that those funds will filter down to customers – priming P2P networking sites with considerably smaller amounts would guarantee that the funds get directly to consumers wishing to spend the funds. Yes such an approach would be radical, and would take governments into areas of risk management that they may not yet understand. However, given current blockages in the banking systems, and the urgent need to kick-start economies across the world, is this a risk worth taking?