Mortgage approvals are up according to the media. Up to a point. Mortgage approvals always rise in July because that is the time that people buy and sell houses. It is a seasonal business that kicks off in the spring and slows down in the autumn. Taking into account redemptions and repayments mortgage lending is actually down on last year, according to figures from the BBA.
OK, how about bank lending to non-financial companies, the booster for the economy. If times are tough and cash flows are drying up, then we could expect the banks to be lending more to their customers. After all we know that the Bank of England has a £175 billion programme to buy gilts and other securities from the banks to give them liquidity and capital to lend to business and thereby fund growth. Well, no, loans to non-financial companies are down 3% on last year, despite the £160bn of bank money sitting on deposit at the BoE.
So let's look at capital spending by businesses. It has just fallen by 10.4% quarter on quarter, according to the Office of National Statistics, 18.4% lower than a year ago and the sharpest decline since records began in 1966. Fair enough. Perhaps we would expect capital expenditure to fall in a recession, but we should bear in mind that a substantial part of that expenditure is on government programmes through the PFI, but which count as private investment. A further considerable part of business capex is on office equipment. This is often contracted expenditure and is so recurrent it is more like an operating than capital expenditure, an unavoidable periodic cost of employing staff.
Then when we take into account equipment with limited lives such as transport and food processing where an ongoing purchase of equipment is required to continue in business or large value items such as aeroplanes and ships which are typically contracted to be purchased years in advance of delivery, we see that the nearly 20% annual fall is substantial, and the substantial fall is blamed in part on the banks' collective refusal to lend.
So what are the banks doing with all the extra capital? Well it looks like they are using it on interbank transactions, derivative trades and a whole lot of hoopla that makes money for the banks but doesn't actually involve lending money to companies, according to Adair Turner. His prescription is to tax the banks, but this is probably the dumbest solution possible, particularly coming from a bank regulator.
One of the reasons the banks don't want to to lend or companies don't want to borrow to invest is the increasing cost of doing business in the UK, regulation and taxation, so adding more burdens and costs to business is not going to help.
If Mr Turner doesn't like what the banks are doing because he doesn't think they are doing the sort of things banks should be doing with tax payer support, then he should do what he is paid to do which is to apply banking regulations. He isn't paid to decide which activities are of a social value (whatever that means), nor to propose tax measures. If he thinks the government should not be supporting finance for speculations on CDS's or the gold market, he should say so and stop banks from taking those risks. If he thinks deposits should be backstopped by a government guarantee because that is the way that business is financed, he should shape the regulations to make it happen.
The problem with his idea of a "Tobin tax" is that it puts up the costs to the banks of doing business, and reduces their likelihood of earning the sort of returns required by the stock market, which means they are less likely to enter into capital-intensive plain vanilla lending to business, and more likely to go after the low capital securitisation and derivatives trading that Turner is trying to limit.
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