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Why Vince Cable has declared jihad on the big bad central bankers

Published 25/07/2013

Business Secretary Vince Cable
Business Secretary Vince Cable

Vince might have chosen his words better but he has a point. Business secretary Mr Cable lashed out yesterday at the Bank of England in a thinly veiled attack aimed at highlighting how it's holding back economic recovery.

He critized the 'capital Taliban' at the bank which he believes has curtailed lending to small businesses by demanding commercial banks hold large reserves of cash to protect against another credit crunch.

If his aim was also to shine a light on the gaping hole between the thinking of government and that of Threadneedle Street then he's certainly ticked that box. It's no surprise that the business secretary has rounded on the hallowed institution.

What is a surprise is that Mr Cable has come to the aid of the big, bad commercial banks, ones which have been vilified by him and many others in the past as the champagne-swilling casino kingpins with a keen eye on risk and a casual disregard for conservatism (on the trading floor, not in politics) the catalysts for the global economic downturn.

The theory is simple: if a bank has to hold more cash it will have less cash to lend.

Speak to any banker and, after they've done the customary "journalists are nearly as disliked by the public as us" pat on the shoulder, they'll say they have money to lend but can't find enough suitably liquid people to lend it to.

Dig a little deeper and you'll find that in fact they're not happy with the new leverage ratio, as it's known, one which forces them to be a little more picky when it comes to choosing borrowers. So on the one hand they're being told by the central bank to up lending with schemes such as funding for lending but on the other they're being told to hold more cash.

But bankers, fear not for Vince is on your side! That is unless you're a central banker in which case he views your tendencies as 'jihadist', apparently.

Belfast Telegraph

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