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By Martin Jacomb
Published: February 10 2010 20:19 | Last updated: February 10 2010 20:19
It is easy to see why everyone is blaming the banks for our current economic travails. They are the obvious scapegoats, and bad lending by many of them has indeed caused enormous damage. But governments, central banks and regulators are also responsible. Governments fostered the idea of living on credit (both public and private); living, in other words, beyond our means. Central banks could have taken steps to stop the US housing bubble inflating; and regulators could have made it much less attractive for banks to lend so freely and dangerously. Each is at fault, for any of the four could have prevented such a catastrophic result.
Now, however, the political imperative of blaming the banks is causing its own damage. It is hindering the vital task of ensuring that the financial sector starts once more to get credit flowing abundantly to those who need it, particularly productive industry. This is not yet happening. Bank managements are having to spend too much of their time and energy examining what regulatory structure they will have to work under and what their responses to the new conditions will have to be. Against this background, it is difficult for banks to get back to making credit decisions in a normal way.
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