Will the Budget budge borrowing?

The government wants banks to “lend” more, the banks need to shrink their balance sheets. Are the two incompatible?

Today’s budget changed the “net lending targets” for RBS and Lloyds to “gross lending targets” instead. Is it just political semantics and posturing, or is it a practical move? Time will tell …..but as an ex-banker used to targets…….I think it could turn out to be the latter.

Reading Robert Peston’s blog on the bbc’s website today http://www.bbc.co.uk/blogs/thereporters/robertpeston/2010/03/chancellor_moves_bank_lending.html he provides a cogent analysis of just why this might be a smart move. He highlights that the banks can now conceivably meet stretching lending targets (and these are circa 20% greater than they achieved last year) whilst also cleaning up and shrinking their overall balance sheets.

So what at first glance looked to many as a semantic fudge, may turn out to be a touch of insight. What is for sure, is that we do need business to have access to increased credit if the recovery is going to be soundly based. A credit crunch was the most potent symbol of the crash and – to date – most of us haven’t really seen it improving for businesses.