UK Govt warns it could nationalise its Banks

FT Aplhaville points that UK Chancellor Alistair Darling has warned that if banks do not open up their credit lines, he could nationalise them!

UK top officials were present at UK Treasury Committee and discussed what to do with UK economy. Mervyn King in a statement at the same meeting (explaining the recent Inflation report and 150 bps rate cut which could have been 200 bps) said bank resuming lending is the biggest concern:

Much though still remains to be done and very significant policy challenges lie ahead. Domestically, the most pressing is to ensure that normal bank lending is resumed. Without that, the downturn in activity could become protracted and extremely damaging. There is also work to do to guard against future financial crises. Given the global nature of our financial system, much of that will need to take place at an international level. In particular, reforms of the international monetary system and improvements to the regulation of banks’ capital and liquidity provisioning are priorities.

As per FT, Chancellor is planning to issue new bank policy:

The chancellor wants regulations that would force banks to give companies more notice of any change in lending practices, including withdrawal of credit lines or sharp changes in interest rates.

He is also looking at ways to extend government guarantees to support new business lending, building on existing proposals designed to release funds for mortgage loans.

Separately, Mr Darling wants to clarify capital adequacy rules to make clear that newly recapitalised banks do not need to sit on a fat cushion of capital and that regulators expect them to lend during the recession.

If these changes fail to reopen credit lines, Mr Darling has a range of options, including a last resort of nationalising the whole banking sector.

However, few banks disagree and say they have been lending:

Banks reject the suggestion that they have reined in lending in spite of the deteriorating economy. Lloyds TSB says its lending to small and medium-sized businesses is up 18 per cent year on year.

Really dramatic times.

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