Analysts blame Mervyn King for economy’s credit drought

THE BANK of England is creating a “corrosive” environment for credit, according to analysts at UBS, while its claim that regulations are not to blame for choking off lending “holds no water”, they said.

Respected banking analysts John-Paul Crutchley and Alastair Ryan accuse BoE governor Mervyn King of failing to recognise that if bank shares do not provide decent returns and pay out dividends, the credit system will not function properly because few investors will put money into banks to let them grow.

And the analysts pin the blame specifically on regulators as opposed to politicians. While parliament has largely completed its legislative agenda, they say, the FSA and BoE continues to chop and change.

“The lack of regulatory ‘closure’ is in our view profoundly corrosive to a willingness to extend credit,” they say, adding that the gap between British and US regulators is “widening” in this respect, pushing the UK into “(less than) splendid isolation”.

The analysts’ report also details the dramatic degree to which British banks’ balance sheets have improved since the crisis. RBS and Lloyds have shrunk their non-core portfolios by a combined £320bn, for example, while both banks in addition to Barclays have boosted their stock of liquid assets by £262bn altogether.