Think Tanks

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Think tanks and campaign groups give mixed reaction to Osborne bank lending plans

By Matthew Barrett
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Following George Osborne's Mansion House speech, and announcement of new bank lending programmes, several think-tanks and campaign groups have reacted to the news.

The Institute of Economic Affairs' Editorial Director, Prof Philip Booth said:

IEA"The government has got itself into a terrible muddle over this crucial policy area. On the one hand, it is imposing huge liquidity and capital requirements on banks to reduce the potential cost to the taxpayer of bank failure. The FSA is also increasingly regulating financial product markets to reduce the flow of funds to borrowers. On the other hand, the government is bringing in a series of schemes to subsidise and guarantee lending through the same commercial banks whose lending is being restricted. Emergency measures to deal with liquidity crises are one thing. However, with regard to the fundamental policy issue, the left hand of the Treasury does not seem to know what the right hand is doing."

Graeme Leach, Chief Economist at the Institute of Directors, said:

IoD"Facing a bombardment from the euro zone the Chancellor and Governor are calling up the reserves. Defensive measures need to be put in place and they’re making sure everyone knows they’ve done it. The extended liquidity and funding for lending schemes are welcome, but limited. The liquidity scheme will need to be massively expanded if break-up and contagion spread across the euro zone. The funding for lending scheme helps the supply of money and the demand for it, by lowering the cost of borrowing. But the core problem remains. Companies alarmed by the euro crisis will not be eager to borrow regardless of the cost."

However, Douglas McWilliams, the Chief Executive of the Centre for Economics and Business Research, sounded more positive about the scheme. He said:

CEBR"I doubt if the mechanism will have more than a marginal impact on most forms of corporate lending. But it might have an effect in two areas: commercial property and home mortgages. The UK still has a lively commercial property market despite the state of the economy and this additional access to money looks to be highly suitable to provide additional finance for the sector. And by making mortgage lending more easily available, it will be possible for lenders to edge up loan to value ratios which could slash the deposits required from first time buyers by as much as a quarter."


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