Banks to do the impossible

The “advice” being given to major UK banks by the government and the Bank of England is  akin to telling someone to walk in two directions at once.

On the one hand, banks are being encouraged to lend money, to both businesses and consumers, to stimulate the economy. The unprecedented low interest rates at the Bank are part of this.

On the other hand, banks are also being told to recapitalise, as many banks are over leveraged and at risk of going bust (again) if there is another major crisis. This process would happen naturally if interest rates were higher, as that would encourage individuals to save more money, and discourage borrowing.

Joined up government anyone?

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