Readers of this site will be hearing a lot more about this new “arm’s length, commercial” company “wholly owned by the government” (on behalf of you and me, the taxpayers, who are paying for it).
It has been set up to own our shares in RBS, LLoyds/TSB/HBOS, Northern Rock and Bradford and Bingley. It will own assets worth well in excess of the annual National Income of the country. It will be responsible for a major share of all bank loans and deposits in the UK, and will have large operations overseas as well.
Its success or failure will determine what kind of economic future we will all enjoy. Any sensible person wishes it well, as it is too big for it be comfortable if it fails. In a way what it does is now more important than what most Ministers do, as its reach extends into a major portion of all business and private transactions, and its stance on the availability of credit and cash will determine how long and deep the recssion is going to be. As someone who opposed the nationalisations which underlie its establishment, I now earnestly hope it can do what they say they want it to do, to protect the taxpayer and ease the credit crunch. If it loses around 1% of the assets it takes on it will lose us the annual defence budget. If it loses us around 3% it has lost us a year’s NHS budget. If it is too tough on customers, it could lose us thousands of jobs as businesses go into bankruptcy.
The Treasury is currently advertising for Non Executive Directors. We are told they are to “protect and create value for the taxpayer as shareholder with due regard to the maintenance of financial stability and to act in a way which promotes competition”. That will require very talented people, who understand the complex political and economic forces which will play on this very public leviathan, and who can see a way of balancing the need to make a profit with the requirement to lend more to people and businesses currently in distress. They are looking for people with experience of fund management, retail or wholesale banking. That makes sense, but they will also need to see the wider picture and to appreciate the pressures on this unique holding company to perform in non commercial as well as commmercial ways.
Are the three objectives compatible and possible? Only with great dfficulty. To create more financial stability at the moment requires more to be lent to a range of businesses who will find meeting the interest bills difficult during the worst of the recession. Being fair to competitors means that state supported banks must not offer concessionary lending using access to cheap money from the taxpayer that other banks cannot obtain. The investments in the government portfolio might need more to be written off their balance sheets, but large write offs at the outset coulld be anti competitive, giving the state banks the edge from access to public support to allow large write offs.
I will be commenting on what they do do and what they should do as this story evolves. All those watching the day by day exchange of soundbites in the Westminster village need to keep an eye on this new collosus, as it will in no small measure determine what happens next to our housing market, our small businesses and much of the economy.