It may have escaped some peoples notice, but 3 month LIBOR, (the rate at which banks lend to each other that was so out of kilter during the main thrust of the credit crunch), is now back to around 0.7% above Bank Base. This is the upper limit of “normality” we have seen in the past.

In this respect then, the credit crunch seems to be at an end. However, if we are back to some kind of normality why are lenders still finding excuses not to lend as much? Surely also rates should be lower now and lenders margins seem to be bigger than ever so they must be “coining it in”?

There are undoubted signs that some lenders are starting to lend that little bit more, why would they not at the margins they can charge at the moment, but there are other issues.

One such is illustrated by the Nationwide today. Here is a decent lender who has not had any money off the taxpayer who are still making profits, albeit 69% down on last year, who are being asked to put in an “illogical” (their words), amount of dosh into the Financial Services Compensation Scheme. This is the scheme that guarantees savings up to £50,000, and for a conservative lender they argue that £241m is a lot of cash to part with.

I agree it does seem a tad unfair, especially as the criteria for contributions is not actually linked to the risks posed.

This is but one example of why funds for lending continue to be scarce; simply because a lot of funds are needed elsewhere. Others include the fact that the “cost”, in terms of cash that needs to be put aside by lenders in providing 90% loans, is around 4 or 5 times higher than loans below 75% loan-to-value. Lenders are always bemoaning the strict measures of capital adequacy requirements and Basle 2, etc…

So, we all appreciate that it is not that simple. However, do consumers really care? Will they soon start believing that it is not banks that are needed, but “banking”? – something I have heard. In the near future banks will start announcing large profits again, and, although we all need this to happen, many will begrudge these.

There are many issues to sort out. The FSA is busy trying to regain its’ “teeth” after being asleep on the job, and may well start hitting out to regain its authority. Ratings agencies are similarly affected. Meanwhile the prospect of any MP sitting down and telling banks off, or indeed anyone else for that matter, for being mischievous has become laughable as their own authority has become questioned like never before.

So, everyone is trying to appear “hard” and in control whilst running around like headless chickens struggling to get their own houses in order. This is now a large part of the continuing issues, and unfortunately, it is consumers who are most affected in the end.

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