We've all been on a spending spree. A borrowing binge. It could crash the economy. So stories this week tell us. Those stories don’t suggest that banks are lending too much — it’s us who are the reckless ones.
I got a letter today from the bank that provides my emergency credit card, the one that’s left in the sock drawer in case I suddenly need to fix a car, replace a boiler or bail one of my idiot brothers out of a New Orleans jail (just say).
The bank is cutting a credit limit I am nowhere near in the first place and congratulating itself in the process.
It tells me: “As a responsible lender, we need to make sure we’re offering credit to each customer that is right for them and a level of risk that is right for us.”
This is plainly a new approach, and I welcome it. But since this bank was the recipient of one of the biggest bailouts in history, you might think it should spare us lectures on prudence.
Were I to ask the same bank if I could extend my mortgage past my retirement date, or increase the debt by £50,000 just cos I fancy it, there would be paperwork involved, but it would mainly be a case of: sign here.
The bank would regard me as underborrowed, lacking leverage, on a house at the same time as it frets about a credit card I hardly ever use (he’s not really a bad lad; he doesn’t need bailing out of prison that often).
As usual, it is measuring the wrong risk at the wrong time. Whatever the biggest threat to the economy is, you can assume that banks will miss it, if only because they always do.
If there is already a housing bubble, they inflate it further. If we’re heading to recession, they press the accelerator.
It is possible that, far from reckless consumers dragging us to a debt crisis, banks again hurt the economy, this time by being over-cautious at a time when we need them to hold their nerve in the national interest.
Fact you can bank on
Today’s sale of a £11.8 billion book of Bradford & Bingley mortgages could hardly make it clearer that banks are more dangerous than consumers.
Bradford & Bingley went bust and we had to bail it out.
Yet there was strong competition to land this book of loans due, says the Treasury, to its “strong credit quality”.
By a huge majority, the borrowers carried on paying their debts through thick and thin.
The customers are still going. Bradford & Bingley is dead.