Since the start of the credit crunch both politicians and the media have reported that the banks are still not lending since they need to re-capitalise. Some uk banks have suffered more than others for example Lloyds/HBOS, Natwest / RBS have been bailed out by the government where as HSBC and Barclays (through clever share issues have raised finance and avoided such government intervention) Firstly, how long will it take for the banks to re-capitalise, what re-capitalisation level do they need and where can you find this information ? Secondly, when they have re-capitalised will they really start lending again since most banks lend money they borrow from the money markets eg LIBOR ? Thirdly, when they do start lending will their lending rates fall ? and finally given that businesses want to borrow and banks are not lending why has the uk not been flooded by foreign banks wanting to lend ? Comments please

The issue of lending is not really down to questions of capital levels although the banks might say the cost of capital is one factor.

The truth is that banks are revaluing risk, have been hurt by bad lending decisions in the past and are now reluctant to lend on the same terms or at the same level as before.

I imagine there is also some truth in the view that those the banks want to lend to are looking elsewhere for their money or have decided not to up their borrowing at the moment.

There are also fewer lenders after some overseas banks retreated, many UK lenders merged and many finance companies closed their doors.

The banks are fighting over the better off partly to improve their capital and loan to deposit ratios.

Hence the idea that only those who don't want to borrow can get a loan and those that want to can't.

As to capital , the UK banks are for the most part more than adequately capitalised even if the new leaked new rules under Basel III.

But the elephant in the room is the key question of Bank of England support and maturing loans. Mervyn King has said he won't extend the loans to RBS and Lloyds on the basis that any bank that can't self-finance at this time needs to think whether it has the right to survive.

Behind the tough talk I think he also believes the banks can now find enough money from other sources - even though it is not an insubstantial sum they need to find.

The banks are making money again, are selling non-core assets and have been borrowing in the wholesale markets but Lloyds more than the others seems to be facing a shortfall as a number of its loans will need need rolling over in 2011 (£95 bln) and 2012 (£35 bln) and it has to repay the money it borrowed from the Bank of England.

As to whether the banks will start lending, the answer is quite simply 'not at the pre-crisis levels'.

And it looks unlikely rates will come down. Most now agree money was too cheap in the boom and it will never be as cheap or easy to get again.

And many banks in many other countries are struggling withsimilar dilemmas in their home countries.

Santander has made a big investment in the but mostly because it has been able to buy customer deposits very cheaply. othrs will be dettered by the fact that the UK is a highly competitive place to do business and there are better opportunities to make money elsewhere.


Hope that answers some of your questions.


I'll be writing a piece on bank funding at the beginnning of next week after BIS confirms the new capital requirements.